Investec lifts target price for Dixons Carphone after strong results

Investec has lifted its target price for electrical product and mobile phone retailer Dixons Carphone (DC) after the company’s well-received maiden interim results on Wednesday.

The broker lifted its target for the shares from 395p to 465p after upgrading its forecasts for profits over the next two years. It reiterated its ‘buy’ recommendation for the stock.

“Maiden interims for DC were expected to be confusing given different accounting periods (six months for Dixons, seven months for Carphone),” Investec said, following the August completion of the merger between Carphone Warehouse and Dixons Retail.

Group earnings before interest and tax increased to £100m in the 31 weeks to 1 November, up from £85m previously and well ahead of consensus of £79m. Pre-tax profit rose to £78m from £60m, beating the £58m forecast.

Nevertheless, the broker said: “Greater focus in our view should be placed on the second quarter’s excellent trading performance and the outlook for the core business, synergy potential and developments within Connected World Services.”

Investec has left its forecasts for the current financial year ending 30 April 2015 (FY15) unchanged but has lifted its estimates for FY16 and FY17 by 2.5% and 4%, respectively.

It said the upgrade reflected the company’s guidance that the realisation of merger synergy benefits has been brought forward by one year.

Investec said: “[The] dividend yield is circa 2%, but free cash flow increases in FY16, potentially offering scope for further shareholder returns.”

The stock was up 4.3% at 444.9p by 11:54.