Currys plc (CURY) Ordinary 0.1p

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Currys’ revenue rose 2% to £3.9bn in the first half, ignoring exchange rate impacts, driven by a 6% uplift in UK & Ireland sales as both Online and Store channels delivered growth. This was dampened by a 3% decline in the Nordics region which is struggling against a weak consumer backdrop. Both regions delivered market share gains.

Underlying operating profit jumped 52% higher to £41mn, with growth split broadly evenly between UK & Ireland and the Nordics.

Free cash flow grew from £4mn to £50mn due to improved profitability and lower inventory levels. Net cash stood at £107mn at the half-year mark, versus a net debt position of £182mn in the prior year.

Full-year guidance remains unchanged, with the group expecting profit growth and positive free cash flows.

The shares rose 8.1% in early trading.

Our view

Currys has had a strong first half, with market share gains in both its major regions. The focus on margins is beginning to bear fruit, helping to propel profits much higher, albeit from a low base. The continued recovery indicates a potential easing of market headwinds and signals cautious optimism for the future.

An increase in UK consumer confidence suggests that a recovery in discretionary spending may be underway. Even a partial return to the longer-term growth trends Currys previously experienced could significantly benefit the group.

Market share gains in both major markets are to be applauded, and the integration of Artificial Intelligence into consumer electronics may herald the beginning of an upgrade cycle. So far this is playing out well, but we caution that it’s early days. The real litmus test will be whether it spurs significant sales over the all-important Christmas period, so updates in the new year will be key to watch.

The fly in the ointment remains the Nordic region which has had a tough first half. But the group’s doing a good job of navigating the weak consumer backdrop here. Margin improvements and market share gains have seen profits rise, despite sales in the region moving in the wrong direction. Longer term, Currys won’t be able to avoid a dip in performance if there’s a prolonged weakness in consumer demand.

The group's services channels remain a beacon of light. Services typically have higher margins than goods sales, so can help to relieve some of the pressure being felt. They also bring a little more revenue visibility to what remains a model very much at the mercy of ups and downs in consumer sentiment.

Fortunately, last year’s sale of the Greek division bolstered the balance sheet. This and improving cash generation mean the group is well placed to cope if trading deteriorates. There’s also plans to announce the return of dividend payments by early July. But there are still no guarantees.

Profit growth has been strong, but their cyclical nature means consumer electronics will always be a challenging place to be. Key to convincing markets that the recovery is now in full swing will be a return to sales growth in the Nordics, and that’s not proving easy. While the balance between sales and margins continues to improve, it’s essential that encouraging momentum is maintained if the valuation is to continue closing the gap with the long-term average.

Environmental, social and governance (ESG) risk

The electronics retail sector is low risk in terms of ESG. Data Privacy and Cybersecurity, Human Rights - Supply Chain and Human Capital are key contributors to ESG risk.

According to Sustainalytics, Currys management of ESG risk is strong. It has set up a dedicated ESG board and executive compensation is tied to performance on these issues. There is also an environmental policy, including a commitment to net zero and interim targets. However, ESG-related disclosure falls short of best practice.

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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