Investors who purchased Currys shares earlier this year are enjoying a substantial return of over 60%, driven by recent takeover discussions involving the electronics retailer. Despite this positive performance, Currys remains one of the most affordable retail businesses on the London Stock Exchange.

Formerly known as Dixons Carphone, Currys offers a wide range of products, including televisions and dishwashers. The company operates more than 700 stores, with about 300 located in the UK, employing around 15,000 people. It has expanded into eight additional countries over the past 25 years, notably entering Scandinavia through its acquisition of the Elkjop brand and holding significant market shares in both the UK and Nordic regions, at 23% and 28%, respectively.

During the pandemic, Currys shares peaked at 156p, but have since struggled due to a downturn in the Scandinavian market, which has faced severe price competition, along with declining sales in the UK amid the ongoing cost-of-living crisis.

This weakness attracted two attempts for a take-private deal earlier this year from Elliott Management, a US hedge fund, and JD.com, a Chinese e-commerce giant. However, both bids were ultimately withdrawn. Elliott’s proposals, first at 62p and then 67p per share, valuing Currys at £757 million, were rejected by the board, which viewed them as significantly undervaluing the company’s true worth and potential.

Currently trading above 80p, Currys appears to be on a positive trajectory. A recent trading update showed a 5% increase in revenues from the UK and Ireland, where it generates over half of its total sales. Conversely, like-for-like revenues in the Nordics saw a decline of 2%, with the company noting that the region’s consumer sentiment is still weak. Nevertheless, this represents an improvement from a reported 8% sales drop a year prior.

Historically, Currys’ balance sheet has raised concerns among investors, primarily due to pension obligations stemming from its 2014 merger with Carphone Warehouse. However, the company’s debt levels are decreasing. In April, Currys divested its Greek business, Kostovolos, for net cash proceeds of £156 million, improving its net cash position to £96 million at the end of the fiscal year, a significant reduction from a net debt of £97 million the previous year. At the same time, the pension liability decreased to £171 million compared to £250 million in 2023, with contributions to the defined-benefit pension scheme set to conclude by 2029.

Investor enthusiasm is bolstered by hopes that Currys can capitalize on the upcoming upgrade cycle for smartphones and personal computers. Currys’ CEO, Alex Baldock, noted that AI-enabled computers are performing well, and the company’s iD mobile network service has surpassed 1.9 million subscribers, marking over a one-third increase year-on-year.

Currys shares are currently priced at an attractive multiple of 8.9 times forward earnings, which is significantly lower than those of its peers. Competitors such as AO World, WH Smith, and Dunelm trade at multiples of 22.8, 14.5, and 17.1, respectively.

Although the company opted not to reinstate its dividend this year, disappointing some shareholders accustomed to an average yield of 4% over the past five years, this decision likely reflects a cautious approach amid ongoing concerns regarding its financial health. The company has indicated a willingness to reevaluate dividend payments in the coming year.

Despite the recent rise in share value, it appears premature to dismiss further takeover interest given the stock’s low multiple. Current advice is to buy due to the favorable valuation, improving operational performance, and strengthening balance sheet.

Update on easyJet

EasyJet narrowly avoided relegation from the FTSE 100 this week, thanks to a last-minute increase in its share price. However, questions remain about how long the budget airline can maintain its position as one of London’s top-listed companies.

Although EasyJet has seen a recovery in sales, profits, and dividends post-pandemic, its share value is still less than half of what it was in 2019.

The airline aims to generate over £1 billion in pre-tax profit within the next three to five years, more than double its pre-pandemic earnings and significantly up from £432 million at the end of the last financial year. A considerable portion of this increase is expected to stem from its higher-margin holiday segment.

The company reported that pre-tax profits for the third quarter rose by 16% to £236 million, aided by a remarkable 49% growth in its holiday business, which generated £73 million. EasyJet anticipates that this sector will yield over £180 million in profit by year-end, representing at least 48% growth compared to 2023.

While EasyJet’s growth targets seem achievable, investors should remain mindful of the stock’s vulnerability to broader economic fluctuations, including fuel price changes. The company will undergo a leadership transition early next year, with Kenton Jarvis stepping up as CEO following Johan Lundgren’s departure after seven years at the helm.

Currently, EasyJet shares are trading at a forward price-to-earnings multiple of 7.8, placing the airline in a middle position among competitors, ahead of Wizz Air at 5.4 but behind Ryanair at 11.8. This column previously rated EasyJet as a hold in December, considering its susceptibility to economic influences. Since then, shares have returned a modest total of 1.6%. Current advice is to hold, given the company’s progress but acknowledging the potential for economic volatility.