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Investec upgrades Dixons Carphone, says further downgrades unlikely

Thu, 9th Nov 2017 10:43

(ShareCast News) - Investec has upgraded its stance on Dixons Carphone to 'buy' from 'hold', keeping the price target at 185p.

The brokerage noted the stock has been down on the back of worries about downgrades, but said that any further material downgrades are unlikely, even though the group's first half results are likely to be weak given mobile headwinds and the timing of non-cash P&L adjustments.

"Valuation in our view is looking increasingly attractive with recent share price weakness overdone and risk/reward on the upside," it said.

In addition, while uncertainty surrounding mobile is likely to persist, Investec reckons Carphone retains a high degree of flexibility to deal with the challenges it faces.

The brokerage expects first-half pre-tax profit of 61m, down 58% on the year, with the drop driven in part by last year's one-off profit items. On the other side of the ledger, it expects around 14m profit progression across UK Electricals, Nordics & Greece.

"Stripping out FY17's one-offs, our FY18e forecasts imply 7% underlying profit before tax growth in H2. Although some may view this as optimistic/unrealistic, a stable performance in electricals and recovery of lost ground in mobile (which already saw a 25m hit to profits in 2H17 from weak trading) would see forecasts being achieved."

At 1040 GMT, the shares were up 0.4% to 153.10p.

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