DCC stock expected to surge on back of Esso deal

Shares in DCC rose by over 6% yesterday on the back of the Dublin-based international support services group signing the second largest takeover deal in its history.

DCC has further expanded its energy division by agreeing to buy Esso’s retail petrol station network in Norway for £235m (€273m), adding to similar deals DCC has done with Esso in France and Shell in Denmark.

A first year return on invested capital of 15% is expected from the Norway deal, which gives DCC ownership of 142 petrol stations in Norway.

On a group level, DCC yesterday said that it expects operating profit and earnings per share to be significantly ahead for the year to the end of March.

A third quarter trading update covering the three months to the end of December yesterday said group profit was strongly ahead for the year.

The DCC Energy and DCC Technology divisions saw strong annualised profit growth, with the DCC Healthcare arm showing a good organic performance.

While DCC’s share price was up yesterday and has risen around 12% in the past month, Davy Stockbrokers still sees room for growth.

DCC is trading at around £68 in London, but Davy said it could rise by a further 18% this year; raising its target price from £75 to £80 in a research note yesterday.

Davy also suggested DCC could make more similar acquisitions to the Norway deal.

“The announcement supports our view that DCC Energy is positioned as a preferred acquirer of retail assets from the oil majors in Europe, and we think there is potentially plenty more to come,” Davy’s transport and logistics analysis team said in the note.

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