Dick Smith Holdings Ltd (ASX: DSH) has jumped to the top of a number of analysts' buy lists after it reported a strong first half, upped its dividend yield and released positive commentary about sales at the start of 2015.
The Past
Dick Smith has an interesting past. The company was owned by Woolworths Limited (ASX:WOW) for around 30 years before being sold to private equity firm Anchorage Capital for a fee of $94 million in 2012.
Anchorage Capital was able to give the flagging retailer the attention required, shutting unprofitable stores, launching new format stores, and developing ground-breaking agreements with competitors. The outcome was a listing on the ASX that valued the company at over $500 million.
The company re-listed on the ASX in December 2013 at $2.20 and the share price has since fluctuated wildly between $1.80 and $2.36 as the weak local retail environment took its toll on competitors.
The Future
Today Dick Smith has over 380 stores including the concession stores within David Jones and a growing number of Dick Smith 'Move' stores, aimed at the younger generation (selling phones, headphones etc).
Analysts now see above sector-average growth for the next three years and an increase in yield from around 5.8% this year to over 7.5% in the 2016 financial year. Earnings per share are expected to grow by 8% this financial year, up to 20% next financial year, and potentially another 10% in the 2017 financial year, however investors should take the 2017 numbers with a grain of salt seeing how fast the local retail industry has moved in recent years.
The earnings growth is expected to come from a combination of additional store roll-outs, cost cutting, an increased use of private label brands, and a greater proportion of lower-cost online sales. Of course, this combines the approaches of competitors The Reject Shop Ltd (ASX: TRS) and JB Hi-Fi Limited (ASX: JBH) and this has produced mediocre results so far.
