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  • Writer's pictureMark Watson-Mitchell

A stand-out ‘recovery play’ for 2024 !!

Currys (LON:CURY) – now really focussing upon growth


Since I Profiled this ‘omnichannel retailer’ in early July this year, its shares have been up to 56.37p and as low as 43.02p, swinging this way and that way, often affected by the stake build of a large retail sector investor.


Last Friday night, after touching 52.70p during the day, they closed at 50.05p, which is a level from which I believe that the shares could easily see a 20-25% uplift within the early part of 2024.


We all know the product ranges


Currently the £554m capitalised technology products retailer has 815 stores, employing some 28,000 people and operating in 8 countries – but that is soon to change, quite significantly.


Greek Disposal


Before the end of next March, the group is expected to complete the disposal of its Greek business which is trading under the Kotsovolos name.


That side of the group has 95 stores across Greece and Cyprus, 14 of which are franchise stores.


In early November it was announced that Kotsovolos will be sold off for £175m, on a debt-free, cash-free basis and excluding lease liabilities.


The net cash proceeds of £156m will be used to reduce net debt and will provide greater flexibility to enable the group to invest to grow both profits and cashflow.


Nordic Rejuvenation


The other major operation within the Currys group, is its Nordic business trading under the Elkjøp brand name.


It has some 420 stores, 174 of which are franchise units, situated across Norway, Sweden, Denmark, Finland and other Nordic territories (such as Iceland, Greenland and the Faroe Islands).


Due to poor trading conditions across its sales ranges, its Management is now underway with a programme of cost controls and margin improvement.


It is understood that it is taking actions that will generate over £25m of permanent cost savings, covering marketing, store and head office payroll, IT expenditure and consultant fees.


Interims to 28th October


Last Thursday morning the group declared that it was seeing a solid performance and noting progress in a continuing tough environment.


That may not sound enticing, but I believe that it is certainly enough to check out the group’s potential as it enters 2024.


The first half-year to 28th October saw the group report a 7% drop in revenues and a £16m adjusted pre-tax loss.


Management Comment


Along with the Interims, CEO Alex Baldock stated that:


"Our priorities this year are simple: to get the Nordics back on track, to keep up the UK&I's encouraging momentum, while strengthening our balance sheet and liquidity. We're making good progress on all these in a still challenging economic environment.


In the Nordics, our trusted brands have delivered substantial gross margin gains, which combined with strong cost discipline have resulted in significantly improved profits. There's still a long way back to healthy Nordics performance, but we're on the way.


In the UK&I, profits are in line with expectations, as we focus on more profitable sales and growing the services that drive margins and customer lifetime value. Credit, Care & Repair and iD Mobile are all performing strongly, while colleague engagement and customer satisfaction continue to rise.


We've already substantially strengthened our balance sheet and liquidity this year. The proceeds of the planned sale of Kotsovolos, at a price that represents a very good outcome for shareholders, will strengthen us further.


We're confident we're building a business that's resilient today and fit to prosper long term."


The Equity


There are some 1,133, 494,651 shares in issue.


The larger holders include RWC Asset Management (14.94%), Artemis Investment Management (10.71%), Cobas Asset Management (8.15%), Schroder Investment Management (5.85%), BlackRock Investment Management (5.11%), Wishbone Management (5.03%), David Ross (4.92%), Ruffer (4.62%), Wishbone Fund (3.97%), and JO Hambro Capital Management (3.56%).


Broker’s Views – Price Objective of 135p


Analysts Adam Tomlinson and Wayne Brown, at Liberum Capital, are positive in their views of how the group will progress going forward.


Their estimates for the current year to end April 2024 are for sales of £9.04bn (£9.51bn) while pre-tax profits could ease to £110.6m (£119.0m), easing back earnings to 7.3p (8.3p) per share.


However, for the next two years the analysts have already mapped out a return to much better results.


In the year to end April 2025 they look for £9.34bn sales, £139.9m profits and 9.2p per share in earnings.


The following 2026 year could see £9.57bn takings, together with a healthier £163.4m profit, taking earnings up to 10.8p per share.


The brokers have a Price Objective of 135p on the shares.


Analysts at RBC Capital recently rated the group’s shares to ‘Outperform’ while upgrading their Price Objective to 70p (60p).


On a consensus of 9 brokers analysts, the average Price Objective is 74.22p a share.


My View – easily heading over 65p and soon


This really does look like a ‘classic recovery prospect’ and certainly one well worth pursuing.


We know the power of the Currys brand, although we may not approve of its bearded advertising hooks.


To cut out Greece, to jazz up the Nordics and sort out its UK and Ireland operations has to make for excellent Management focussing.


As the festive season spending really gets underway before the inevitable New Years Sales, this group’s Management must be praying for good weather, good sales and improving margins.


We will get a clear Update on just how the Peak Season trading has fared come Thursday 18th January, between now and then I can see the group’s shares very easily improving in price from the last close of 50.05p.


(Profile 10.07.23 @ 49p set a Target Price of 61p)

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