Credit Suisse starts Dixons Carphone at 'outperform'

Dixons Carphone racked up some healthy gains on Thursday as Credit Suisse initiated coverage of the stock at ‘outperform’ with a 12-month 420p price target, implying a one-year total shareholder return of 30%.

CS argued that Dixons Carphone was a rare example of a successful retail merger, pointing out that since the combination just over two years ago, it has gained significant market share in its core markets and demonstrated robust operating and best-in-class profitability metrics in what is widely considered to be one of the toughest sub-sectors in retail – consumer electricals retailing.

“Despite robust like-for-like growth and profit delivery this year, shares are down 33% year to date on investor concerns about weak sterling and demand next year.

“We argue that Dixons Carphone will pass through higher costs, while demand is likely to remain stable and the flux in the industry should help the company gain market share in the UK and Europe.”

The bank reckons Dixons can deliver 3-4% top-line growth and strong cash generation over the next four years thanks to additional benefits from planned synergies, the ongoing store optimisation and focus on Services.

At 1430 GMT, the shares were up 2.4% to 339.60p.