DCC to focus on energy sector, shares surge

DCC surged on Tuesday as it announced plans to simplify its operations and focus on the energy sector, reported a rise interim profit and lifted its dividend.

The sales, marketing and support services group said the energy business and related opportunity in energy transition "presents the largest growth opportunity, at strong returns, available to the group".

As a result, it has begun preparations for the sale of DCC Healthcare, which is expected to complete next year. In addition, the company will review strategic options for DCC Technology within the next 24 months.

DCC said it expects to return any surplus cash arising from the simplification to shareholders.

Chief executive Donal Murphy said: "We are announcing decisive actions today to simplify our group, pursue our largest growth and returns opportunity and unlock substantial shareholder value, from positions of strength. This aligns with our philosophy of disciplined capital allocation.

"In the energy sector we are building a unique, multi-energy, sustainable business focused on supporting our customers with their energy transition. Our strategy will deliver strong profit growth, high returns and a significant reduction in our customers carbon emissions.

"Our healthcare and technology divisions have a long and successful heritage in DCC. They are high-quality businesses, led by strong, entrepreneurial management teams. Our actions are designed to ensure that these businesses and our people have the best opportunity to grow and progress."

News of the shift in focus came alongside results for the six months to 30 September, which showed a 4.7% jump in adjusted operating profit to £259.3m.

Revenue declined 3% to £9.3bn, mainly due to lower revenue in DCC Energy, where average commodity prices fell.

DCC lifted its interim dividend by 5% to 66.19p per share.

Murphy said: "We delivered good profit growth in the first half of our financial year. Although the macro environment remains volatile, our resilient business continued to perform well."

At 1245 GMT, the shares were up 15.4% at 5,730p.

Russ Mould, investment director at AJ Bell, said: "DCC has realised there is merit in focusing on what you do best rather than having fingers in many pies.

"The healthcare, technology and energy conglomerate has done well over the years, yet its share price hasn’t made a lot of progress. In this situation, it’s inevitable that the board looks at options for the business and a break-up of DCC is now on the cards.

"The focus will now be on the energy arm as this is the group’s biggest profit engine and generates the highest returns.

"Investors and analysts will be busy doing the maths, trying to work out what the individual components of DCC could be worth and seeing if that justifies taking a position in the shares now in hope that the healthcare and technology arms are sold for a lot more than is currently attributed by the market."

Jefferies, which rates the stock at 'buy', had previously argued that group complexity was weighing on the shares. As a result, it views news of the simplification and focus on energy "as the hard catalyst the equity story needed" and said it "should unlock value with shares currently trading on 10x FY25 estimated price-to-earnings".