Where does the collapse of bid interest leave Currys?

After a tumultuous couple of years for Currys, the UK’s largest electricals retailer will hope that today marks the beginning of the end of the turbulence.

The retailer has been in the headlines since mid-February when US investment firm and Waterstones owner Elliott Advisors came in with a takeover proposal valuing Currys at £700m.

That bid was rejected but generated interest from Chinese retail giant JD.com, which also ran the rule over the business.

Today, however, Currys said both Elliott and JD.com were out of the running. While the news might come as a blow to some investors hoping to clean up from a lucrative sale, the retailer’s management also shared a trading update.

Currys upped its full-year profit guidance to “at least” £115m and said current trading was ahead of expectations.

The retailer also said that like-for-like sales in the Nordics, which has been a troubled market for the retailer on and off since 2022, were positive and gross margins remained “robust”.

Currys also expects to complete the sale of its Greek business Kostsovolos in the second half of April, further strengthening its balance sheet for the future.

As a result of the update, Currys’ share price had climbed more than 5% at the time of writing.

So where is Currys’ business now and how is it shaped for the future?

Strengths and opportunities

Despite its recent travails, Currys still has many strengths. Revenues and sales fell in the last reported financial year, but the retailer still maintained its grip on the number one market share in its category in the UK.

Currys has more than 800 stores in the UK and overseas, runs a UK-wide price match online and in store with its competitors and, according to data from Retail Navigator by Lumina Intelligence, has more than 10,000 global suppliers, giving it “flexibility to react quickly to fulfil changing supply chain demands”.

Investec analysts Ben Hunt and Kate Calvert say they expect a “significant proportion” of Currys’ UK store estate to be up for renewal in the next five years, which could mean rents across the majority of its stores can be reduced substantially.

While the UK continues to perform strongly, the bigger issue for the retailer in recent years has been abroad. After years of consistent success in the Nordics, 2023 brought a 10% drop in like-for-like sales in the region, which led to a 7% dip in international sales more generally.

After a tough year, though, Currys chief executive Alex Baldock says that trading in the region is “back on track” and “progressing well, despite [a] still-challenging market”.

Continued strong trading in the Nordics – a market where Currys has a nearly 25% share – will be a welcome return to form there.

Royal Bank of Canada analysts Richard Chamberlain and Manjari Dhar say that if Currys can maintain its current “strong market position” in both the UK and Ireland and the Nordics that “should serve it well with a more benign interest rate outlook” on the horizon.

Another success story is what Baldock describes as Currys’ “continued strong growth in services”, such as its installation and recycling schemes on tech and its dedicated helplines for customers to set up, repair and maintain their equipment.

The retailer has also increasingly been moving into selling refurbished and secondhand mobile phones.

Investec’s Hunt and Calvert say the “value of the UK and Ireland care and repair and mobile businesses is worth more than the current market cap” of the brand “with upside to forecasts – especially if a new replacement cycle materialises”.

Weaknesses and threats

While the struggling Nordics market appears to have turned around for Currys, some City analysts have been critical of the October 2023 decision to sell its Greek business Kotsovolos to electricity supplier Public Power Corporation.

That was despite the fact it delivered a 12% increase in sales to £637m in the 2023 financial year.

In June 2023, Currys said Kotsovolos was a “strong-performing and profitable business” with “high brand awareness, a unified ecommerce platform and a diverse mix of products and services”.

Investec’s Hunt says the decision to sell the business was about preserving cash and that “Currys has done a lot of the cost savings itself”.

Retail Navigator’s Beth Bloomfield adds that the sale of the Kotsovolos business, which also operates in Cyprus, will “lead to reduced revenue” at the brand’s international arm and “weaken its European presence” – one of the main reasons many analysts suspected JD.com was interested in buying it in the first place.

Despite its strong position, the UK electricals market continues to be highly competitive and margins on electricals tend to be inherently low, while a competitive pricing strategy means it will always be difficult to raise margins significantly.

However, Currys international troubles seem to have turned a corner and, as the financial situation in the UK and internationally begins to improve – albeit slowly – the retailer’s troubles may have just been blips.

While takeover talk may die off for now, Currys’ investors would certainly never say never in the future. However, based on today’s numbers, the retailer may be able to make progress without the need for new ownership.