Bottom Line: Dixons curries favour

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The Independent Online
BY CONTRAST with GEC, an 8 per cent rise in Dixons' share price to 184p yesterday was a pretty charitable reaction to figures that confirmed the persistently tough conditions on the high street.

The market took heart from an 11 per cent sales rise since the April year-end, but gross margins are still lower than a year ago and unlikely to improve much with interest-free giveaways a continuing reminder of consumers' reluctance to spend.

On the bright side, moving Curry's from the high street to the edge of town seems to be paying off with like-for-like sales usefully ahead. The disposal of Silo, too, while it wrecked these figures, was a deft retreat from a hopeless battle.

But flat sales are making heavy weather of the core UK operation and the collapse of demand for computer games before Christmas provided last year's banana skin.

Analysts worry that this year's howler could be an adverse call by the Office of Fair Trading which is looking into the sale of extended warranties, arguably the source of most of Dixons' profits. A demand from the OFT that Dixons sells other insurers' warranties, or discloses its commissions, or issues facts and figures on the (very high) reliability of many of its products could wreak havoc with profits.

On that basis a prospective p/e of 15, from BZW's reduced pounds 85m forecast, puts the shares on a more- than-generous 15 per cent premium to the rest of the market.

(Graph omitted)