Dixons Carphone and Kier

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“Markets looked a bit wobbly on Tuesday with weakness in natural resource companies and financial stocks dragging the FTSE 100 down 0.3% to 6,950. “Asian markets were also looking gloomy with declines across the major indices as investors worried once again about a slowdown in global growth. “Sterling was also weak against the US dollar and euro as investors tried to make sense of the latest twists and turns in the Brexit saga,” says Russ Mould, Investment Director at AJ Bell.

Dixons Carphone

“Another Christmas trading update and another retailer which hasn’t shocked the market with a profit warning. Dixons Carphone has managed to keep its head above water with festive trading which means it can maintain full year earnings guidance.

“This is a really interesting situation if reports are correct that activist investor Elliott has lined Dixons up as its next target. It is much easier to push for changes in a business if the core operations are stable rather than faltering.

“Chief executive Alex Baldock is unlikely to want any interference from activist investors considering he is fairly early into his turnaround plan for the retailer.

“Its share price has fallen by nearly 75% in the past three years, explaining why it could be a target for activists. One potential action could be pushing to sell Dixons’ Nordic and Greek businesses as they are in fairly decent shape. That could help to streamline the business to solely focus on the UK, generating some cash to help fund some of its transformation plans and reduce debt.

“Dixons expects to generate more than £1bn in free cash flow over a five year period which is highly attractive to any patient activist investor confident that there is significant value generation potential in the business.

Kier

“The immediate departure of Kier chief executive Haydn Mursell will come as only a mild surprise after recent reports that leading shareholder Neil Woodford was pushing for changes at the top of the construction firm. Other big investors in Kier were said to be of a similar mind.

“At the end of 2018 the company endured the indignity of seeing only a third of the shares offered in a £250m rights issue taken up by investors.

“The rest had to be mopped up by the banks underwriting the issue and both Mursell and finance director Bev Dew saw their positions come under scrutiny.

“Using the share price as the barometer, the market verdict on Mursell’s four-and-a-bit years in the top job does not paint his tenure in a particularly favourable light.

“The shares are down more than 60%, though it is worth noting just how weak sentiment towards the construction and outsourcing space has been, particularly since the collapse of Carillion early last year.

“It may not have been an unqualified success, to put it mildly, but at least the company’s fundraise has put the company on a surer footing financially. Mursell could also take some comfort that he is not leaving the company after a profit warning, with June 2019 results expected to hit expectations.”

These articles are for information purposes only and are not a personal recommendation or advice.