Full-year results from the Human Screen

Carphone Warehouse is too complicated for the Human Screen to assimilate fully in the hour or two he has to form a first impression, but he's seen enough to conclude it’s not in deep value territory.

Highlights

• Adjusted operating profit up 7%
• Return on tangible assets: 11%
• Adjusted net profit of ''58m compared to net cash flow of -''12 (-''12m after net capital expenditure)
• Net cash down 15% at ''103m (no pension obligation or operating lease commitments)
• Per-share dividend flat

The Human Screen comments:

A quick glance at Carphone Warehouse’s short but eventful history has convinced The Human Screen that he’s not looking at a stable business. Neither is it straightforward to analyse in its current form. Headline profits from its wholly owned operations (presumably the well known shops in the UK) are dwarfed by its joint venture with Best Buy in Europe and another joint venture, Virgin Mobile France, a mobile telephone service like TalkTalk, which demerged from Carphone Warehouse in 2010. It sold its interest in ‘phone retailer Best Buy Mobile (also a joint venture), last year while starting another, Global Connect, also with Best Buy, that will operate in emerging markets outside the USA and Western Europe.

Some of the churn has been worthwhile, the sale of Best Buy Mobile raised ''838m, more than Carphone Warehouse’s current market capitalisation, most of it returned to shareholders, but Carphone Warehouse is not simple enough for the Human Screen to assimilate in the hour or two he has to form a first impression. The corporate activity obscures the underlying narrative. He suspects in Europe and the US at least the rapid growth is long gone and the market is increasingly competitive due to the Internet. That may explain Global Connect.

So the Human Screen is not going to appraise the market’s valuation using earnings, because he hasn’t a clue how representative they are of future earning power.

The market values Carphone Warehouse at 1.4 times tangible book value, so it’s not in deep value territory.

More on Carphone Warehouse.

LON:CPW

HS+ (worth watching for improvement in fundamentals/price)