The FTSE 250 share I’m writing about today has risen nearly 70% so far in 2024, but it still doesn’t look expensive to me. I believe it’s worth considering.
The business in question benefits from a big market share in the UK and fantastic brand recognition. As an occasional customer, I know from my own experience that its prices are competitive.
An impressive turnaround
The company’s tech and electrical retailer Currys (LSE: CURY), of course. This well-known firm has around 300 stores and a strong presence online too.
However, one problem with this business is that home appliances and consumer tech are low-margin products. Competition to sell at the lowest price is intense, led by rivals such as Amazon, AO World and Argos (owned by Sainsbury’s).
There’s also a big pension deficit at Currys. This will require the company to make £327m of additional payments over the next five years.
These issues make it clear why chief executive Alex Baldock has led a push into more profitable repair and credit services since taking charge. These products are packaged with the firm’s tech products and help lift profit margins.
The results have been impressive, in my view. Currys now has around 2.3m credit customers and 12m repair plans in place. The firm also has more than 1.9m mobile customers on its iD Mobile virtual network.
The success of these efforts means Currys’ sales are expected to return to growth this year. Although brokers only expect annual revenue to rise by around 0.5% in 2024/25, they estimate the group’s adjusted profits could rise by as much as 16%.
The main reason for this is that Currys’ fixed costs (such as stores and warehouses) don’t change when it sells an extra item. So the profit from extra sales can have a big impact on the bottom line. In financial jargon, this is known as operational gearing.
What about the economy?
Although a UK recession could hit consumer spending, there doesn’t seem to be any obvious sign of this at the moment. Now that interest rates and inflation appear to have peaked and falling, affordability may be improving for consumers.
The last big sales boom in consumer tech was during the pandemic. I’ve seen some analysts suggesting that the market’s now coming round to the next big replacement cycle.
Currys also says that AI-enabled computers are generating a lot of interest:
We expect AI-powered technology to be the most exciting new product cycle since the tablet in 2010
Impressively, the company now claims to have almost 50% of the consumer laptop market.
A bargain in plain sight?
The Christmas trading season should tell us whether Baldock’s being too optimistic or if he’s correctly read the market.
But if Currys comes back to the market in January with a strong trading update, I suspect the share price could respond well.
At around 83p today, the shares are still only trading on nine times 2024/25 forecast earnings. That doesn’t seem too expensive to me, given the improving performance of the business.
This post was originally published on Motley Fool
