Investor excitement late last year about DCC, which distributes everything from urinary catheters to home heating oil, deciding to ditch its conglomerate roots to focus on one sector has proved short-lived. For now, at least.
Shares soared almost 20 per cent in London in the weeks after the Irish group announced last November that it was selling off its healthcare unit and looking at “strategic options” for its technology business, while doubling down on its largest division: energy.
They have retraced their steps and are now marginally below where they were hovering when DCC unveiled the biggest strategic shift in its three decades as a listed company.
Chief executive Donal Murphy managed last month to strike a deal to sell the healthcare unit – even with global financial markets in turmoil as Donald Trump flip-flopped on tariffs. The business spans selling medical products and devices to doctors and hospitals, to developing nutritional supplements such as vitamin gummies and beauty products for brand owners.
But the £1.05 billion (€1.25 billion) value of the deal fell well short of the £1.3 billion to £1.6 billion some analysts had expected.
[ DCC ‘confident’ it will stay in FTSE 100 Opens in new window ]
Murphy told The Irish Times this week that delivering on the sale was an achievement in itself. “The world has clearly turned upside down since November,” he said. “The greatest concern was that we wouldn’t get a deal done.”
The plan is to return £800 million of the £950 million cash proceeds from the disposal to investors in stages.
But now comes the hard part: offloading the group’s technology division. The tech unit, which distributes audiovisual equipment to events companies and consumer tech gadgets, saw its operating profits fall almost 16 per cent in the group’s financial year to the end of March, dragged down by weak household demand for tech products.
Murphy insisted this week that his team is still on course to deliver a €20 million-€30 million operating profit boost through a series of measures.
Still, prettying up the division is proving an expensive business. The group booked a £52 million charge last year against the loss-making French and Iberian arms of its Exertis business, which distributes tech gadgets from home security cameras to wireless keyboards, in order to get it ready for sale. It agreed last month to sell two units for “a modest consideration”, according to its full-year results statement on Tuesday. It also exited small tech distribution businesses in the Middle East and Scandinavia.
DCC also took an almost £74 million goodwill impairment hit against its UK info tech business. A profit recovery in the business “has taken longer than expected”, it said, with market conditions “showing little sings of improving”.
Meanwhile, the bulk of £37 million of restructuring costs racked up by DCC last year covered large “optimisation and integration” projects in its technology division in North America and the UK. But the big question hanging over the North American operation is what tariffs – wherever they finally land – will do to already-muted consumer demand.
DCC may have a compelling story to tell on energy, which will carry the group’s ambition of doubling earnings to £830 million over eight years to 2030 as it shifts from making most of its money selling fossil fuels to profiting from the green transition.
But investors are likely to continue to apply a so-called conglomerate discount to DCC’s stock (complex businesses have long been out of favour across equity markets) until the tech unit is offloaded. Trump has made that harder.
Datalex remains hooked on Desmond backstop
Travel retail software company Datalex has raised €50 million of equity in two deals in the past four years, mainly to repay emergency loans from its largest investor, Dermot Desmond.
Datalex’s latest annual report, published on Thursday, shows it remains hooked on financial support from the billionaire.
Desmond’s Tireragh vehicle is prepared to offer a €5 million funding facility to the company, it said, should it not be able to raise additional equity by the end of June, as planned, to finance its new product offerings to airlines. The money would be repayable by the end of September.
Shares in Datalex are currently trading at about 34 cent, about 25 per cent below the level of last September’s stock sale (where Desmond was the main buyer), making it difficult for the company to go back to the market.
Backstops are usually helpful to a company seeking to raise equity. But does a fear among other investors of Datalex becoming beholden to Desmond loans again (he ended up charging 18 per cent interest on the last lot) make it almost self-fulfilling?
Cantor Fitzgerald analyst Peter de Lacy was also scathing on Friday, after meeting with Datalex management. “Unfortunately, the company has no additional information to share on new client wins or potential pipeline additions. 2024 was a barren year for the company with no new clients added to the roster,” he said in a note to clients.
He’s had enough. “Given the uncertainties around revenue growth and drivers, lack of new client wins and pipeline information and a pending quantum-unknown equity financing, we are dropping coverage of the stock and withdrawing our 32c price target,” he said.
