Well known electronics retailer Dick Smith Holdings Limited (ASX: DSH) listed in December 2013 at $2.20. For investors who didn't jump aboard the initial public offering (IPO), or haven't yet taken a detailed look at the company – they're in luck, as Dick Smith's share price has pretty much gone sideways for the past six months. It's currently selling for less than its IPO price at $2.14.
The IPO prospectus states that management expected the firm to achieve a pro-forma net profit after tax of $40 million (equivalent to 16.9 cents per share) for the year ending 30 June 2014. This week in a presentation released to the ASX, Dick Smith's management has reaffirmed guidance – this is great news for current shareholders but also of interest to prospective shareholders.
Here are four reasons investors should be interested –
1) Store network expansion
Dick Smith has grown its store base by approximately 15% this financial year (FY) and is expected to grow store numbers by a further 8% in FY 2015. As the store roll-out continues and new stores mature, earnings can be expected to grow.
2) Cost containment
Under the earlier ownership of Woolworths Limited (ASX: WOW), Dick Smith was performing very poorly; it appears this was at least partially due to a bloated cost base. The current management team looks to have done a great job of reducing costs across the group, with cost of doing business (CODB) falling from $280 million in FY 2013 to a forecast $236 million this year.
3) Valuation
The stock is currently trading on a forward price-to-earnings (PE) ratio of 12.7. For comparison, peer JB Hi-Fi Limited (ASX: JBH) is trading on a forecast PE of 14.6, implying earnings growth of 7.8%.
4) Dividend
Dick Smith should pay its first dividend in October 2014 with guidance for a pay-out in the range of 60% to 70% of profits. At the low end, this suggests the stock is currently yielding on an annualised basis 4.7%.
