Investor: An insider's guide to the market The run of strong corporate profits reports emanating from Irish-quoted companies continued earlier this week when DCC reported first-half figures significantly ahead of market expectations.
DCC is classified as being in the business support services sector. The company markets and distributes its own and third-party branded products in energy, information technology, healthcare, and food and beverages. DCC also has a developing environmental services business and a stake in the Irish housebuilder, Manor Park.
DCC's policy is to build strong positions in sectors offering long-term above-average growth prospects with scope for bolt-on acquisitive development. Its activities are now evenly split between Ireland and Britain.
DCC's market capitalisation is €1.9 billion, putting it in the same league as Independent News & Media (€2 billion) and IAWS (€2.2 billion). In the year to the end of March 2006, total revenues at DCC were just under €3.5 billion with the energy division accounting for close to half of these revenues. As well as its oil distribution franchises in Ireland, DCC is the market leader in the British oil distribution market.
In the six months to the end of September, underlying volumes in energy were steady and management is hopeful that 14 per cent growth year-on-year can be maintained in the second half of its financial year.
DCC's information technology businesses put in a strong performance, helped by their focus on the buoyant consumer digital market. IT is DCC's next most important sector after energy. The healthcare and food and beverages divisions account for approximately 30 per cent of operating profits and these delivered a broadly flat performance. A weak UK wine market dampened an otherwise solid performance in food and beverages.
DCC's smallest division is environmental, which accounted for just 2 per cent of group sales. Revenues here are growing very rapidly and DCC aims to build a substantial waste recycling business. The acquisition of a business in Britain, Wastecycle, is a significant step forward and further deals are likely in what is a long-term growth sector.
Bolt-on deals have been a key aspect of DCC's business strategy and have played a significant role in enabling it to deliver annual growth in earnings per share of 17 per cent over the past decade. Oil distribution, healthcare and environmental are likely to be areas of focus in the future.
Typically DCC makes acquisitions that are relatively small in the overall group context and concentrates on deals that complement existing activities. It rarely gets involved in auction situations, ensuring deals are acquired on attractive valuation multiples.
A source of hidden value in DCC is its property assets, where it has begun to unlock some of that value. It is selling its Fannin healthcare premises in Sandyford to relocate to a larger location. The estate agent is quoting a valuation of more than €40 million. Also, rezoning for mixed development on the Allied Foods site in Tallaght was recently received.
DCC's shares have had a strong run in the run up to its results and have risen further following the results. The shares have now risen by 15 per cent in the past month and are up 28 per cent year-to-date. Although much of the good news is now reflected in the share price, Investor sees DCC as continuing to offer good long-term value.
Across the Irish Sea, Vodafone also released interim results this week. There are still many small Irish investors with holdings in Vodafone and they will be glad to hear that the results were well received, with the shares rising 2.4 per cent to 139p. The interim dividend was increased by 6.8 per cent, which means Vodafone will be paying £1.2 billion (€1.78 billion) to its shareholders out of pretax profits of £4.8 billion.
Many investors are buying Vodafone shares for its relatively high dividend yield. Unfortunately, those who received shares in the Eircell takeover are still nursing losses. For the full year, Vodafone is guiding revenue increases of 5-6.5 per cent.
Investor says: This week's financial reports at home and abroad indicate there is no end in sight for the long-running positive trend in corporate profitability that has been a feature of the bull market.
