Currys has agreed to dispose of its Greek business in a deal that's set to raise net proceeds of £156m. That's an implied valuation of 6x underlying cash profits (EBITDA).
The Board intends to use the funds to bring down debt and potentially the group's pension deficit. Further investment in growth initiatives is also on the cards. If there's anything left, a cash return to shareholders will be considered but there can be no guarantees.
Subject to shareholder and regulatory approvals the transaction should close early next year.
The shares were up 5.5% following the announcement.
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Our view
Currys looks to have found a new home for market leading Greek electronics retailer Kotsovolos. We agree that management has negotiated a decent price for the sale. And if approved, the proceeds will provide a welcome boost to the balance sheet, potentially opening up a path to reinstating the dividend. Of course there can be no guarantees here.
The disposal should also allow management to resharpen its focus on the core business. But there's no magic wand here. Consumers are simply struggling to justify discretionary spending on computers and gadgets amidst a cost-of-living crisis. This is offsetting a better performance in domestic goods, which suggests customers, although still spending, are becoming more selective. This is something that will need to be monitored as we head into the festive trading season. Santa delivered some strong growth for the domestic business in the last peak sales period. It's a tough ask to expect the same again this year.
In the Nordics region, the second largest segment, the group's long track record of success was brought to an abrupt halt. The market here is extremely tough and overstocked. Currys has had to slash prices to clear inventory piles. That, combined with inflated costs has ultimately hurt the bottom line.
Despite all the challenges, there are some bright spots.
One of the group's main attractions is its omnichannel model. You can enter a store and have access to the entire online shopping range or speak to an in-store expert in the comfort of your own house. These services help Currys attract and retain a customer once they've made contact, and likely due to the more personal touch, stores have been outperforming online.
The group's services channels have also been a beacon of light. Services typically have higher margins than goods sales, so can help to relieve some of the pressure of the group's falling revenues.
The cost-saving programme is progressing well too, with a further £110m in savings expected to be achieved over the current financial year. That should provide some relief to the underlying operating margin which is running thin at 2.3%.
The valuation is well below the long-term average, reflecting the short-term challenges. Management is making some decent strategic progress, but consumer electronics will be a challenging place to be as spending power comes under increasing pressure. A great deal also hinges on a recovery in the Nordics, and until that happens, group performance is likely to be lacklustre.
Currys key facts
All ratios are sourced from Refinitiv. Please remember yields are variable and not a reliable indicator of future income. Keep in mind key figures shouldn't be looked at on their own - it's important to understand the big picture.
This article is original Hargreaves Lansdown content, published by Hargreaves Lansdown. It was correct as at the date of publication, and our views may have changed since then. Unless otherwise stated estimates, including prospective yields, are a consensus of analyst forecasts provided by Refinitiv. These estimates are not a reliable indicator of future performance. Yields are variable and not guaranteed. Investments rise and fall in value so investors could make a loss.
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