There was more misery for troubled DSG International (Dixons/PC World/Currys/Pixmania) which lost 11p at 53p after broker Pali International forecast the shares will sink to 33p. A trading update early next month is unlikely to provide much inspiration for the stock.
Brokers JPMorgan downgraded the stock, noting that the macro environment in all its core markets would continue to deteriorate. The broker said that it believed that gross margins in the UK in particular would remain under pressure, with retailers struggling to maintain prices as the slowdown in the housing market hits white goods sales.
Analysts also expressed concern that the group may come under pressure from TV promotions from competitors, particularly for laptops as children go back to school, as Argos enters the market and Carphone Warehouse expands its offering. It has cut 2008-09 profit forecasts by 10 per cent and by 16 per cent for the year after.
Worse still, JPMorgan noted that although DSG’s shares have rallied 86 per cent since June 7, on hopes that it could ease its financial situation by selling assets and with recent market rumours suggesting a break-up, the hopes were misplaced. It added that unlike Kingfisher, the DIY retail group, which recently sold its underperforming Italian business for €560 million (£447 million), DSG’s Spanish and Italian operations were less valuable, as they are leasehold, loss making, and operate in markets that are likely to remain challenging for some time.
Instead, the broker thinks that the company is more likely to invest in them to close or restructure. Comments from Pali International that DSG looked “very overvalued,” combined with the stock going ex-dividend, meant the company’s shares fell 10¼p, or 15.8 per cent, to 54½p.
So, for the time being, there appears to be little good news on the horizon for DSG and that they will almost inevitably be looking to cut costs wherever possible.