DCC jumps on outlook, acquisitions
DCC shares shot up 4.5% yesterday on the back of the support services group announcing improved firstquarter profits and further acquisitions in the US and the UK.
The group’s interests span energy, healthcare, and technology. It said operating profits for the first quarter of its current financial year, covering the three months to the end of June, were well ahead of the corresponding period last year without giving actual figures.
First-quarter profits were largely driven by the contribution from acquisitions completed in the prior year, and DCC reiterated its expectation for full-year profit growth for the 12 months to the end of next March. The group’s earnings are heavily weighted towards the second half of its financial year.
The consensus view among analysts is for DCC to post earnings of £445m (€504m) for its current financial year.
DCC has also boosted its technology division with the purchase of two companies in the UK and US with a combined value of £110m. The acquisitions of Buffalobased professional audiovisual product supplier Stampede and UK-based mobile product distributor Kondor are expected to generate a return on capital employed of about 15% in the first full year of ownership.
“These are very material deals for DCC Technology and will increase the size of the division on an earnings before, tax, interest, depreciation and amortisation basis by around 30%,” said Davy analyst Allan Smylie.
The Stampede deal marks DCC Technology’s first move into the north American market and both companies are viewed as being in attractive growth areas. The US company generated revenues of $280m last year, while Kondor, which sells in the UK and mainland Europe, had sales of £110m in 2017. Both companies employ more than 200 people. DCC chief Donal Murphy said the Stampede deal will give the technology division a platform for growth and development in north America.
“Despite the limited weighting towards the first quarter, commentary in the statement from DCC would suggest that the bias to our estimates remains to the upside,” said Goodbody analyst Gerry Hennigan.
“The acquisition of Stampede marks DCC’s first technology entry into the US and follows similar moves on the energy and healthcare sides and, in our view, is likely to be well received. At first glance, we estimate the two deals will enhance [group] earnings by approximately 3.5% on a full-year basis,” he said.
In May, DCC reported 11% profit growth and 13% revenue growth for the year to the end of March.