DIXONS closed just shy of its 12-month high as the Currys and PC World chain became the latest retailer to be added to the roster of possible bid candidates.
Andrew Hughes, at UBS, has taken another look at Dixons before next Wednesday’s full-year results. He points out that despite a relatively favourable outcome to the Competition Commission report on extended warranties, better than expected Christmas sales and the divestment of its stake in Wanadoo, the shares continue to trade at a discount to their sector. Mr Hughes attributes this weakness to long-standing concerns over the outlook for its market share in the UK, the ability to generate returns in continental Europe and the expectation that it will use its £340 million of cash to fund overseas acquisitions, rather than returning it to shareholders through a share buyback.
However, aside from highlighting the boost to trading from growing sales of big- ticket flat-panel products, UBS draws attention to Dixons’ potential for restructuring through a management or leveraged buyout. He points out that with start-up ventures currently depressing pre-tax profits by 8 per cent and its cash pile equivalent to 10 per cent of its stock market value, Dixons offers scope for a leveraged bidder to improve returns. Further, he suggests the “debt-carrying” potential of the business makes any equity stub component manageable.With UBS moving from “hold” to “buy” with an 180p target, Dixons rose 5p at 161p, with the FTSE 100 up 2.2 at 4,493.3.
After rallying off its post-merger low on Wednesday on rumours of bid interest from Viacom of the US, ITV gave up 1¼p to 111¼p as Deutsche Bank downgraded the broadcaster from “buy” to “hold” with a 115p target, against 150p previously. The German broker has cut its earnings per share forecast for the next three years by 4 to 8 per cent, citing weaker forecast advertising revenue growth at ITV1. Sentiment was also hurt by Campaign , the trade journal, which suggested that a weak audience performance could wipe £100 million off next year’s revenues.
But Fidelity, which led the ousting of Michael Green as chairman, has lost none of its appetite for ITV, declaring that it has bought a further 50 million shares, taking its stake to 11.4 per cent.
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Xstrata faded 13½p to 691p amid fears that it may be one of the unnamed bidders that has approached Canada’s Noranda, the world’s third-largest zinc miner that admitted to takeover interest on Wednesday. Anglo American, which owns an equal 44 per cent stake in Chile’s Collahuasi copper mine with Falconbridge, a Noranda offshoot, is also expected to be interested. Anglo improved 6p at £11.19.
Daily Mail & General Trust added 10½p to 703½p on withdrawing from the auction for the Telegraph group, prompting Paul Dacre, the director who edits the Daily Mail, to pick up 21,000 shares at 698¼p.