The recent IPO of Fitbit (NYSE:FIT), GoPro (NASDAQ:GPRO), the launch of the apple watch and the Kickstarter funded Pebble watch, among others, highlights an undeniable new trend in wearable technology. Furthermore the stock of household gadgets which now connect to the Internet and will in the future is building, adding momentum to the so-called 'Internet of things' (IOT). Indeed, in the last month, Francois Hollande has opened Europe's largest centre dedicated to such gadgets, 300km outside of Paris.
In day-to-day life we hear about employees of companies competing with one another on the amount of steps walked per month, as recorded on their Fitbit's, and now this has been taken up to the professional level. The owners of Manchester City FC (City Football Group) announced this week that one of their other football clubs, Melbourne City FC, will use wearable tech and the stats will be shown on a huge data screen at the stadium. Comparing players to each other and teams alike. The idea being to enhance the fans experience, with further innovations to come.
Dixons Carphone PLC (DC)
These trends further highlight the strength of one of our earliest and best performing stock picks, Dixons Retail PLC, now Dixons Carphone PLC (DC). We took a long position two years ago when competitors in the electronics market in the UK were going bust. In 2012-13 Woolworths, Jessops and Comet all went into liquidation as the economy-wide demand was down and Internet sales escalated. Dixons Retail were left as the major retailer in this market. Furthermore, Dixons have specifically highlighted the IoT industry as their strategic focus including the servicing angle, as a potential £5bn market could open up, it projects.
Recent news and prospects
Since this time Dixons Retail have absorbed the mobile phone retailers Phones 4U and merged with Carphone Warehouse, continuing a trend of high street consolidation. This year DIxons have announced a further venture with Sprint Corp (NYSE:S) in the U.S highlighting more global ambitions. The collaboration with the U.S. mobile network operator could see it open and manage up to 500 Sprint-branded stores in the United States following an initial 20 branch investment (50:50 joint venture).
Dixons are no longer minnows in the stock market, now listed in the FTSE 100. However the company remains a growth stock. Profits before tax were announced this week above expectation at £381mio, up 21%. This included a loss on discontinued operations of £114mio. Furthermore, synergy savings of £80mio are expected to be delivered one year ahead of plan. The proposed dividend for the year of 8.5p is up from 6p, 42%.
Price targets from city analysts target the 500-550 area, a 10-20% gain on current price levels. Given the long run trends and strategies noted above we would be even more bullish as a buy and hold stock.
In summary, given a strong market position, increased dividends in the pipeline and long run strategies which match trends in wearable tech and the Internet of things, we see good potential for Dixons. Let us know if you agree.