Dixons looks a different animal

INVESTMENT COLUMN

Just about everything has turned round for Dixons in the past six months. In January, the electrical retailer was moaning about subsidised competition from the regional electricity companies after its shares had finished 1994 as one of the worst performing stocks on the FT-SE 100.

Yesterday showed how much its fortunes have changed. Dixons bucked the trend on the high street to report underlying pre-tax profits up 37 per cent to pounds 110.3m in the year to April. The previous year's figures were marred by exceptional items of more than pounds 200m, principally relating to the disposal of the Silo business in the US. The shares, which put on a another 13p to 281p yesterday, have now risen by more than 50 per cent since December.

In the meantime, the UK electrical market has fallen into Dixons' lap. Thorn EMI pulled the plug on Rumbelows in February. Comet has slumped into loss and several of the electricity companies have abandoned the high street. Dixons looks a very different animal to the company Kingfisher had a tilt at back in 1989.

The slight weakness is the core Dixons business, where like-for-like sales have fallen for the past two years. The company is responding with 75 re-formatted stores which concentrate on smaller, portable ranges such as cameras, camcorders and mobile phones. The whole chain will be moved over within three years.

At Currys, Dixons is shifting the emphasis out of town, where like-for- like sales growth has been running at 8 per cent. Low levels of competition have helped PC World, the computer superstore chain, raise like-for- like sales 13 per cent, though Byte, the privately owned rival, is growing from a small base. Ten more PC World stores will open in the coming year, while The Link, which specialises in mobile phones, will grow from eight to 14 stores.

Dixons' shares have had a spectacular run since Christmas. But with further rationalisation of the market expected -and a possible boost to consumer spending from tax cuts before the next election - they could have further to go.

NatWest Securities forecasts profits of pounds 115m next year, which puts the shares on a forward rating of 15. The premium rating is justified by the prospects.

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