Following the recent rights issue I belive there are now 2.1Bn shares in issue and the share price is now 25p. Thought I'd do a bit of finger in the air arithmetic to see if the shares at this price are worth buying.
Turnover has never really been a problem for DSGi and stands at a whopping £8.1bn but obviously they need to make a profit on this and 2009 consensus is £200m profit falling to £175m by 2010.
Lets assume a 2010 p/e of 5 on earnings of £175m after tax say £125m gives a market cap of £612m or about 30p a share.
But what I find interesting is all that turnover of £8.5Bn. If and it is a big if they can increase margins to say 5% (migth be very hard I know) then this turns into a profit of £425m by say 2010 and assuming a p/e of 5 (and 30% tax rate) gives a market cap of 1.47bn or 70p a share.
So as ever with this stock we need to see operating margins improving. Hemscott gives margins of 1.4% currently against a sector average of 8.64%. So there is hope here and perhaps the new man in the job (who has been there I think just over a year) might be able to pull off this margin improvement now they have funding to see them through.
Thoughts?
Log
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John Browett, the CEO, is ex-Tesco's I believe and seems quite capable - he has big plans for an extensive store refit and now he has the funds to do it. It's also helpful to see the £311 million cash call in place to strengthen the finances as it was looking overgeared but I stil worry about the impact on the business of an ongoing, long and painfuldownturn in consumer spending across Europe.
They just flogged off their Hungarian business (9 stores) to to EW Electro Retail for one Euro!! http://www.stockopedia.co.uk/news/announcement/DSGI/090519dsgi000471.htm. They are retaining operations in the Czech Republic and Slovakia and said these continue to perform well, but operations in Poland are under review.
I agree that eventually they must be cheap enough to have a go but I just find it hard to understand the inflection point for a retailer like this... In the back of my mind, I wonder whether selling electrical goods in large format stores is even a tenable business model going forward given the rise of the Internet?
No clear view really but will keep watching...
The Internet argument comes and goes to be honest. I still think there is a place for seeing / touching big ticket items before you buy them. I think what the Internet gives you is choice and perhaps that is why they are going for the big stores so they can carry more stock in them. They have a large Internet presence too at the moment and seem to have a decent service where you can buy online and pick up in store which might work well.
At the end of the day John B has to do somthing about the profit margins. If he can achieve that they I think we'll see a major turn around. Could be a slow death thought otherwise.
Log