Image source: Getty Images
I FTSE 250 the share I’m writing about today is up about 70% so far in 2024, but it still doesn’t look cheap to me. I believe it is worth considering.
The business in question benefits from a large market share in the UK and impressive brand recognition. As an occasional customer, I know firsthand that their prices are competitive.
An impressive transformation
The company’s dealer of technology and electronics The Currys (LSE: CURY), of course. This well-known company has around 300 stores and a strong online presence as well.
However, one problem with this business is that home appliances and consumer technology are low quality products. Competition to sell at the lowest price, led by competitors such as Amazon, The world of AO and Argos (owned by Places to stay in Sainsbury).
There is also a large pension deficit at Currys. This will require the company to make £327m in additional payments over the next five years.
The news makes it clear why chief executive Alex Baldock has led to significant gains in restructuring and debt since taking over. These products are integrated with the company’s technological products and help to raise profit margins.
The results have been good, in my opinion. Currys now has approximately 2.3m credit customers and 12m maintenance plans. The company also has more than 1.9m mobile customers on its iD Mobile virtual network.
The success of these efforts means that Currys sales are expected to return to growth this year. While retailers only expect annual revenue to rise by around 0.5% in 2024/25, they estimate that the group’s adjusted profit could rise by around 16%.
The main reason for this is that Currys’ fixed costs (such as stores and warehouses) do not change when it sells something else. So the profit from the extra sales can have a big impact on the bottom line. In financial jargon, this is known as working gear.
What about the economy?
While the UK’s economic slowdown may be affecting consumer spending, there doesn’t seem to be any sign of this yet. Now that interest rates and inflation seem to be up and down, affordability may improve for consumers.
The last major sales boom in consumer technology was during the pandemic. I have seen some commentators suggest that the market is now entering the next major cycle of change.
Currys also says that AI-powered computers are generating a lot of interest:
We expect AI-powered technology to be the most exciting new product cycle since the tablet in 2010
Astonishingly, the company now claims to have nearly 50% of the laptop consumer market.
Open trading?
The Christmas trading period should tell us if Baldock is too optimistic or if he is reading the market right.
But if Currys returns to the market in January with a strong trading update, I suspect the share price could respond well.
At around 83p today, the shares still trade at just over nine times 2024/25 earnings. That doesn’t seem too expensive to me, given the efficiency of the business.
Source link
