Having fended off takeover interest from private equity giant Elliott Advisors last year, omni-channel electronics retailer Currys (CURY) is demonstrating the board’s decision to spurn bids opportunistic bids at 62p and 67p and go it alone was the correct one. A flurry of earnings upgrades have since ensued, driving Currys’ share price higher, during a period when many rival UK consumer-facing firms have been delivering downgrades.

Shares has had a positive view on the name for some time. One of the last remaining electronics retailers with a physical high street presence, Currys is making a virtue of this status by offering handholding when people are buying increasingly complex consumer technology; it also offers services ranging from credit to delivery, installation, repairs and recycling which bring competitive advantages and help Currys stand out from the crowd.

And yet, given the extra costs loaded onto the business by Rachel Reeves’ national insurance and minimum wage hikes, a consumer still grappling with inflationary pressures and the uncertainty unleashed by Donald Trump’s tariffs, can the TVs-to-laptops purveyor keep the upwards earnings revisions coming?

SELF-HELP DRIVEN UPGRADES 

Investment bank Berenberg points out, ‘the primary driver of Currys’ profit growth and earnings upgrades had been self-help through sustainable gross margin and cost-savings initiatives, from which there is more to come’.

And crucially, Berenberg also argues the emerging tariff war should have ‘little impact’ on the super-size TVs-to-tumble dryers seller, since Currys does not sell into the US and the retailer could even benefit from China and Far East capacity improvements.

London-headquartered Currys is nevertheless a retailer of big-ticket items, so it would be negatively affected by a downturn in consumer confidence, and given it operates on razor-thin margins, investors should be alert to any sudden changes in the cost picture.

Bossed by CEO Alex Baldock, Currys raised its year-to-April 2025 profit guidance yet again on 3 April. The latest in a series of upgrades followed ‘robust’ trading in the period since 4 January 2025, with the FTSE 250-listed group delivering continued positive like-for-like sales growth in the UK & Ireland as well as the Nordics. ‘What has now changed is that, for the first time in four years, both the group’s UK & Ireland and Nordics divisions are delivering positive like-for-like sales growth,’ notes Berenberg.

Currys now expects adjusted pre-tax profits for the year to 30 April 2025 to be around £160 million, comfortably above the tech product purveyor’s previous £145 million to £155 million guidance range. This upgrade followed an earlier bump up in the profit outlook in January after Currys delivered ‘strong peak trading’. For the 10 weeks ended 4 January 2025, the retailer’s UK & Ireland like-for-like sales increased by 2% with mobile, gaming and premium computing offsetting weaker TV sales, while Nordic like-for-like sales increased by 1% with Currys’ Elkjop chain winning market share from regional rivals.

NORDICS NO LONGER A DRAG

Having been a drag on Currys’ sales in recent years, the Nordics region has returned to growth and gross margins are expanding in this part of the business. Panmure Liberum believes the outlook in the Nordic economies appears to be improving, ‘prompting us to question whether Nordic EBIT (earnings before interest and tax) margins could return to pre-pandemic levels sooner rather than later. If this were so, we see circa £40 million upside to our outer year forecasts.’

TECH TAILWIND

Analysts reckon Currys has probably benefited from a modest uptick in consumer confidence of late, but one of the key drivers of its recent sales uptick is a technology replacement cycle that is driving consumer demand for new AI-enabled computers.

As Berenberg observes: ‘There is also an enduring, post-Covid-19 technology replacement cycle that is now kicking in. Laptops (where Currys has an 80% share of the UK & Ireland new device market), for example, have a four- to five-year cycle, which is helping to drive sales, and this is happening at the same time as a transformational shift that is seeing artificial intelligence being incorporated into consumer technology.’

Drawing confidence from its strong cash flow and rehabilitated balance sheet – the company expects to finish the current financial year in a strong net cash position – Currys plans to reinstate the dividend alongside the full year results in July. These robust cash flows will allow Currys to further invest in its competitive advantage and pay down its pension deficit in the year to April 2027.

Debt reduction twinned with earnings improvement could be a powerful re-rating catalyst for Currys, which remains a very cheap stock (see box-out below). Currys’ robust cash flow and fortified balance sheet could also see it go from being prey to predator in the hard-pressed retail sector, should Baldock and his team spy the right opportunity.

WHAT THE BROKERS ARE SAYING

‘With upgrades already coming through, a £6 billion-plus self-help additional revenue opportunity and structural tailwinds now emerging, we believe Currys is only at the start of its upgrade cycle,’ insists Berenberg, adding that ‘management’s guidance for “profit and free cash flow growth” in the year ahead has not been based on any macro backdrop improvement.’

Even after the flurry of upgrades that have powered the shares as high as £1 in recent months before settling back at in the 90p to £1 range at the time of writing, Currys trades on a single digit price-to-earnings ratio which implies significant re-rating potential.

As Berenberg notes: ‘One can also argue that the combined value of Currys’ services revenue (circa £700 million of recurring, higher-margin, cash-generative sales) and its iD Mobile network (2.1 million subscribers) alone is equal to the current entire group market cap.’

Panmure Liberum forecasts Currys will generate £79 million in free cash flow in the current financial year after pension contributions, building to as much as £98 million by full year 2027. But if higher profits are generated in the Nordics, with margins returning to pre-pandemic levels, then the broker’s ‘Blue sky’ assumptions imply Currys could feasibly generate as much as £180 million of free cash flow by full year 2027. Taking Panmure Liberum’s blue sky free cash flow assumption of £186 million by full year 2027 and applying a valuation of an 8% to 10% yield, then Currys ‘theoretically should warrant a valuation of between £1.86 billion and £2.35 billion’ argues the broker, versus a current market cap of a bit above £1 billion.

‘Not only is positive earnings momentum a key theme, but there are so many free cash flow) catalysts over the next few years, we are surprised the shares are not higher,’ says Panmure Liberum. ‘Consensus is looking for cash on the balance sheet from circa £130 million to £150 million by year-end and our scenario analysis below shows numerous ways that free cash flow could grow greater than two times over the next two years.’ 

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