Dixons shares hit 22-month high at rival Comet’s expense

2 Nov

As the UK’s second-biggest electrical retailer, Comet, teeters on the brink of administration with the potential loss of another 6,000 jobs in the retail sector, there has been one beneficiary.

Dixons, the UK biggest electrical retailer, has seen shares leap 12% on the news this morning that Comet is in financial difficulties and may be forced to close.

Shares are up 2.5p, 12.2%, at 23.1p – a 22-month high.

In the longterm Comet’s collapse could be a boost for Dixons as another rival is taken off the high street. However, online retailers have squeezed Dixons for years in the competitive electronics market.

And in the short term, Dixons could suffer in the run up to christmas, as any closing Comets could take customers with heavily discounted stock it needs to shift.

Either way, it’s perhaps worth pointing out that Dixons made a £118.8m loss last year, although this was mainly due to hits taken on its European businesses in Greece, Italy and Turkey.

Seymour Pierce analyst Kate Calvert upgraded Dixons and said:

As market leader, Dixons would certainly be a beneficiary.
This together with the fact that Tesco, the number 3 electrical retailer in the UK, needs to start making a better return from its electrical business would be beneficial to margin longer term we believe. Short term, though, there may be some disruption as administrators discount Comet’s stock to clear.

We reiterate our BUY recommendation on Dixons and raise our price target to 26p from 24p as we believe the probability of upgrades has increased given Comet’s situation.

Dixons’ position in its core markets of the UK and the Nordics continues to strengthen and the current valuation does not reflect the strong momentum in both regions driven by market consolidation and a strong innovation pipeline.

 

http://www.businessownersdirect.com

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