DCC raises its earnings forecast

Support services group DCC has marginally upped its earnings forecast for its current financial year, after a steady first-quarter performance.

The group — which now has its shares listed in London — yesterday told shareholders at its AGM in Dublin, that it expects to see growth of 10%-12% in both operating profit and adjusted earnings per share for the year to the end of next March.

At the time of the publication of its last set of annual results in May DCC said that it was guiding for operating profit and adjusted earnings per share growth of 10% for the current financial year.

However, that guidance has now been slightly enhanced after a good first quarter performance for most of its divisions during the three months to the end of June.

A trading update, published ahead of yesterday’s shareholders meeting, showed that DCC Energy — the Dublin-based group’s largest division, which covers subsidiaries in the home heating bracket to aviation fuel distributors — traded in line with budget, but slightly behind of the corresponding three months last year, mainly due to warmer weather conditions this year.

However, the second largest element of the group, the DCC Technology (formerly Sercom) business — which distributes electronic consumer goods — increased revenue, year-on-year, as sales of IT and communications products continued to increase.

DCC Healthcare was ahead year-on-year — driven by growth in the health and beauty solutions business and the positive contributions from recent acquisitions.

The group’s two smaller divisions — DCC Environmental and DCC Food & Beverage — both traded in line with budget and were ahead of the same period last year as the Irish and British economies continued to recover.

Management also noted that group operating profit remains “significantly weighted” towards the second half of the financial year and said that current guidance continues to be based on the assumption that there will be normal winter weather conditions later in the year.

Nevertheless, analyst reaction to the first quarter update was positive with Davy Stockbrokers maintaining its ‘outperform’ rating on DCC stock, but not yet adjusting forecasts which are already above those of management.

“Although early in the year, this performance points to another year of excellent returns — ahead of the 16.3% return on capital employed reported in 2014. With a WACC [weighted average cost of capital] of less than 6%, the economic value being created by this business is not reflected in the valuation,” according to Davy.