Dixons Carphone sees £600m wiped off its market cap: City analysts blame Brexit

 
Oliver Gill
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Dixons Carphone said Brits were hanging onto their handsets for longer

Whoever said August is a quiet month for the stock markets?

Dixons Carphone shares have nose dived this morning after investors were spooked by a trading update that revealed a triple whammy of problems. Annual profits are now expected to be considerably down on last year.

Some £800m was wiped off the firm's shares in the first hour of trading. Shares have regained some of the lost ground but the firm's market cap is around £600m lower than it was at the end of yesterday.

To recap, the three issues are:

  1. Britons are holding onto mobiles for longer and not buying new ones
  2. The banning of EU roaming charges means they will take a hit of up to £40m
  3. The firm wants to sell software over the longer-term, which means it can't book as much profit up front

Here's how City analysts have reacted.

Read more: Dixons Carphone shares plummet 25 per cent

Brexit matters here...

ETX senior analyst Neil Wilson said the UK mobile phone market was "proving a tough nut in 2017".

He added:

Consumers are holding onto phones for longer. Brexit matters here – the weak pound exchange rate has made devices more expensive and consumers are less willing to replace old handsets so quickly.

"The lack of a significant upgrade cycle from Apple has played a part and we might expect an improvement when the iPhone 8 is released, which might be towards the end of the year, although the chief executive Seb James isn’t betting the farm on the next Apple device."

Less money

"On a simplistic level it appears that changes in roaming charges are likely to see Dixons Carphone receiving less money from the networks than they originally expected," said UBS retail analyst Andy Hughes.

However, Hughes added: "This is likely to be a one-off revaluation on the receivables this year and should not repeat next year."

Another day, another profit warning

Hargreaves Lansdown equity analyst Nicholas Hyett picked a hole in the claim FX movements were working against the firm.

He said: "Currency movements will have made new phones more expensive, but since the same should be true in the electronics business, which is faring well, we suspect the lack of significant innovation in recent models is a bigger problem."

Another day, another profit warning. This time it’s Dixons Carphone’s turn to take a tumble, with headline profit before tax expected to be 20% below previous market expectations.

The electricals and phone retailer has been hit by a whole cocktail of bad news. While the honeybee and receivable revaluation are one-off, non-cash or both, news that UK consumers are hanging on to their phones for longer is more concerning.

Managed services

"The managed services division (CWS) is doing less well on revenues, which have fallen by a quarter," said Wilson.

"In June we noted that CWS continues to grow very quickly, with revenues up 41 per cent and profits nearly doubling to £21m, helped along by contracts with EE and TalkTalk.

"CWS also features Honeybee, the tablet sale software being rolled across the Sprint store network in the US. The Honeybee pipeline is growing and Dixons has agreements with outsourcers in France and the UK that may deliver further customers. CWS is an area of growth potential that investors might be overlooking."

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