RE: Dedicated bid news thread.....23 Feb 2024 05:30
ELECTRICALS
‘Currys shareholders should hold out for a valuation that reflects long-term prospects’
By George MacDonald22 February 2024
For pretty much as long as China’s economic star has been in the ascendant, there has been speculation that one of its new generation of digital retail powerhouses might move to swoop on a venerable UK name.
That may now happen, as JD.com ponders a bid for electricals market leader Currys.
A potential pounce prompts many questions. First and foremost, what does a Chinese ecommerce goliath see in a fairly lowly-valued UK retailer?
That low valuation is probably key. Currys, like other retailers, has found life more difficult during the cost-of-living crisis, although there are reasons for optimism – the retailer expects its results to beat consensus.
However, Currys’ share price – 68.5p at the time of writing, and up 45% over the last few days on the back of bid interest – is low compared to heights it has previously reached. It’s down 10% over the last year and has lost almost half its value on a five-year basis.
So an acquisition by JD.com, presumably for significantly more than Elliott Advisors’ reported £700m approach that was rejected by Currys, could represent a bargain.
“While JD.com is primarily an online business, and as much a logistics giant as a retailer, it has been interested in bricks and mortar for a while”
There are reasons why it might make sense for JD.com. It faces tough competition in its domestic markets so further international earnings streams would appeal.
While JD.com is primarily an online business, and as much a logistics giant as a retailer, it has been interested in how bricks and mortar could complement its existing strengths for a while.
Last November, for instance, CNN reported that Xu Lei, chief executive of JD Retail, had acknowledged limitations of its business model and that he wanted it to “build offline stores on our own and partner with existing players”.
As well as experimenting with stores in China, such as grocer 7Fresh and department store JD E-space, last year JD.com opened two Ochama “robotic” pick-up shops carrying a wide range of goods.
JD.com also has a longstanding interest in electricals. In 2020, it made a “strategic investment” in Gome, one of China’s biggest electricals chains.
Just last November, it was reported to be interested in buying Ceconomy, owner of retailers such as MediaMarkt in Europe. There was feverish speculation then that a deal would result in a ‘flood’ of cheap Chinese products.
Whether that would be so is a moot point. However, there’s little doubt that JD.com’s digital strengths, scale and power of partnerships could complement Currys’ strengths, such as an effective omnichannel model that puts value on the power ...
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