DCC (LSE: DCC) shareholders saw their shares drop 6% in morning trading Thursday, after the firm released a raft of updates.
The international sales, marketing and support services group posted a pre-close update ahead of first-half results, saying operating profit should be in line with expectations and “well ahead” of the same period last year.
At the same time, the company also revealed the acquisition of the Jam Group of Companies for $170m, a company it describes as “a market-leading North American specialist sales, marketing and services business serving the professional audio, musical instruments and consumer electronics product sectors.”
This takes the total value of DCC’s acquisitions since May’s preliminary result’s announcement to approximately £270m, and the firm appears dedicated to its path of growth through acquisition.
New placing
The third instalment on Thursday was a proposed placing of 8.9 million new shares to institutional investors, which represents around 10% of the company’s current issued share capital. The proceeds are to be used to further DCC’s acquisition strategy, which the firm says has “contributed to operating profit growth over 24 years at a compound annual growth rate of 14.4%.”
Would I buy DCC shares, on a forward P/E of 18.7? I’m always wary of rapid growth by acquisition and I want to see organic growth too, but DCC looks like it’s achieving that. Dividends look a bit low at around 2%, but I wouldn’t expect to see big yields from a company focused on growth.
I see DCC’s shares as decent value now, but I’m wary of what might happen should the current growth spell slow.
Another faller
Shares in Halfords Group (LSE: HFD) also dipped on Thursday, losing as much as 9% of their value in early trading before clawing back a couple of points.
The trigger was an update on the firm’s plans, which should see capital expenditure over the medium term increased from current guidance of around £40m per year to as much as £60m. The car parts and bicycle vendor says the extra will include “significant investment in our stores, garages, and digital platforms.”
Shareholders will surely be fearing that the extra £20m per year will reduce the cash available for dividends. An attraction of Halfords shares is the yields in excess of 5% currently forecast by the City, which would be around 1.6 times covered by earnings — a bit tight, I’d say.
Dividend commitment
To counter that, Halfords has made “a new commitment to preserve the ordinary dividend along with continuing to target to grow it every year.“
The company also says its debt targets remain unchanged and that it has started on a new cost efficiency drive, but says pre-tax profit for 2020 is now likely to be largely flat, where analysts had been expecting an increase of around 6%.
I’m conflicted on what to think. On the one hand, even if there won’t be a return to earnings growth by 2020 as previously hoped, planning for the longer term must be a good thing. Or is the latest news an admission that Halfords’ stores are simply getting tatty and it had misjudged what it would need to get back to growth?
With Halfords shares on a P/E of around 11, I’d sit back and wait.
