Dick Smith Forecast 600% Profit Jump, Owners Look For $345m Pay Day

Written by Oonagh Reidy     15/11/2013 | 12:22 | Category: HOME OFFICE

Profits forecast to jump sixfold as Anchorage Capital looks for $345m payday

Owners of Dick Smith, Anchorage Capital, predicts the retailer's earnings EBITDA will treble to $71.8m by FY14 - a massive improvement on $23.4m recorded in FY2013.

Net profit is also set to take a major leap sixfold to $40m from $6.7m, this financial year. FY14 sales are set to be slightly lower than last year at $1.22 bn. 

Big product launches this year include PlayStation 4, Xbox One, Smart watches such as Samsung Galaxy Gear, and Curved OLED TVs, Dick Smith investor prospectus, released yesterday, indicates. 

Turnaround-focused private equity firm Anchorage Capital, which bought the ailing retailer off Woolworths for $20m last year, is now looking to earn over $344m from the planned IPO of Dick Smith. 

156.6 million shares will be issued at $2.20 a pop. 

The rationale for the massive jump in profitability in just 12 months was based on the" transformation and growth initiatives" implemented by CEO Nick Abouud and his team at Dick Smith, already evident in the Q1 2014 results, says Anchorage.  

Dick Smith EBITDA for Q1 FY14 was $11.6m - almost half the entire earnings figure recorded for the whole of FY13.  

"The transformation and growth initiatives underpin Dick Smith's forecast growth to an expected pro forma EBITDA of $71.8 million in FY2014," the prospectus states.  

"The Directors believe that the significant increase in the underlying profitability of Dick Smith and the sustainability of the increase have been evidenced in the Q1 2014 results.

"This transformation program will continue to deliver additional financial benefits in the coming years."

Management estimates that Dick Smith has a 10% - 11% market share of the ANZ consumer electronics market, and insists its "business model is differentiated from that of JB Hi-Fi and Harvey Norman."

However, prospectus cited threats to profitability including: 'many of Dick Smith's products are viewed by consumers to be 'discretionary' items rather than 'necessities''; future changes in the retail environment; and price deflation.

"Investors in Dick Smith should be aware that the ANZ retailer environment has experienced challenging conditions due to lower consumer sentiment and retail demand as well as price deflation", the prospectus states.

Uncertainty about Australian and international economic conditions, political uncertainty and subdued sentiment in the aftermath of the GFC, were also cited.

Consumer electronics may experience further periods of price deflation in certain categories and input prices maybe impacted by the devaluation of the Australian dollar, DS management also warn.