Energy fuels DCC's profit engine

A credible performance by DCC’s (DCC) energy business helped to offset the continued decline in fortunes of the distributor’s technology operations. 

Overall, this meant the Dublin-based company’s adjusted operating profit of £683mn was largely in line with analysts’ forecasts. Profit in the energy business was up 10 per cent despite a weaker top line as energy prices fell. Profit in the healthcare business finished 4 per cent lower, which was a big improvement on the 12 per cent slide experienced in the first half. Chief financial officer Kevin Lucey said its healthcare business “returned to organic growth in the second half of the year following 18 months of difficult market conditions”. Demand for patient care and medical device products improved in Europe but remained weak in the UK and slid in the US.

It is the technology arm that remains the group's laggard, though. Although it managed to keep a tight rein on costs, demand was weak throughout the year, most notably for consumer tech, and profit fell by 14 per cent. 

A 100 per cent cash conversion ratio meant DCC's free cash flow increased by more than £100mn on the prior year to £681mn and the group increased its dividend by 5 per cent, meaning that it has grown dividends in each of the 30 years it has been a public company. 

After a strong recovery at the end of last year, DCC’s shares have recently tailed off and a 3 per cent post-results slide pushed them into negative territory so far this year. They trade at under 12 times earnings, below their five-year average of around 14 times and with analysts forecasting earnings growth of around 10 per cent over the next 12 months, they still look like reasonable value. Buy.

Last IC view: Buy, 5,176p, 14 Nov 23