Carphone shares slip 16% amid worries over sales

Britain's biggest mobile phone retailer, Carphone Warehouse, saw its shares fall 16 per cent yesterday despite reporting a 20 per cent increase in first-half profits to £9.6m. The shares fell 21p to 107.5p, almost half their 200p float price of July last year.

Charles Dunstone, the chief executive, said the mobile phone market was changing after the huge boom last year fuelled by cheap, pre-paid mobiles but said this should benefit Carphone Warehouse. "The market is moving from being about anyone with a cash register selling mobile phones to being about quality and service," he said. "We are very excited about that."

He added that he was anticipating a strong Christmas with many of last year's pre-paid customers upgrading their phones and changing to monthly subscriptions.

However, there is a danger of demand exceeding supply as the handset manufacturers cut deliveries. They are forecasting sales this Christmas to be 40 per cent of last year's boom level. That compares with Carphone's estimate of demand being 60 per cent of last Christmas's level.

Analysts at Credit Suisse First Boston said the potential shortage of handsets could hit Carphone's like-for-like sales. The broker cut its full-year profit forecast to £55m from £67.3m with downgrades too from UBS Warburg, SG Securities and Williams de Broe. Profit taking after a strong rally in the shares over the past month was another factor behind the share price fall, analysts said.

The fall came despite strong half-year figures. In the six months to 29 September revenues rose to £539m from £447m in the same period last year. Though profits rose, there was a pre-tax loss of £100,000 after exceptional items and other charges.

Carphone's UK market share rose to 18.3 per cent compared to 12 per cent a year ago. This has been helped by falling handset subsidies from manufacturers making pre-paid phones more expensive.

Carphone's mix of monthly subscription connections has grown by 10 per cent to 58 per cent. These sales are worth three times as much as a pre-paid connection. However, pre-paid phones still account for 90 per cent of the market.

Profits in stores open more than a year rose by 2 per cent against a market estimated to be down 40 per cent. This trend has continued in current trading.

Recurring revenue increased from £32m to £69m. The company has also signed a deal with Vodafone to manage all billing and other customer services to new subscribers signed through its stores.

The group plans to open a further 75 stores in the second half of this financial year on top of its existing portfolio of 1,100 branches in 12 markets.