Time to take profits on Currys after a strong run, says RBC Capital

(Sharecast News) - Currys slumped on Monday after RBC Capital Markets downgraded shares of the electricals retailer to 'sector perform' from 'outperform', saying it was time to take profits after a strong run. The bank, which maintained its 140p price target, said Currys has worked hard to improve its offer in both the UK and Nordics, and its stronger balance sheet and likely lower pension contributions should enable it to make higher cash returns going forward.

"But macro risk remains and we think its valuation is fairer now, hence we reduce our rating to sector Perform, and remove our speculative risk qualifier."

RBC noted that Currys saw three rounds of earnings upgrades in FY25 but said these have stalled somewhat recently as the outlook for the Nordics has become more uncertain.

The bank said it has more valuation upside for some other stocks like B&M and Avolta, hence the Currys downgrade.

RBC highlighted a "mixed" macro picture.

It said Currys has a strong relative market position, some further self-help opportunities and is building what it calls more 'stabilisers' into the business, to reduce its macro and seasonal risk. This includes adding new products and more recurring revenues.

"However, the discretionary nature of its assortment and its relatively low operating margins mean that its earnings outlook will remain sensitive to the macro," RBC said.

In the UK, it continues to expect real wage growth to be positive but for this to fade over the next year, albeit consumers appear to be unlocking some of their savings this year to support consumption.

"We think some of the doom and gloom sentiment on the UK has eased off since Q4 last year, but there is likely to be some consumer concern about future tax rises that may be needed to fund welfare and defence spending," the bank said.

It said the outlook for the Nordics is mixed. "Generally interest rates are on a downwards path but at different speeds - Norway rates have been stable year-to-date, Sweden consumer confidence is still fragile, whereas Denmark consumer confidence has improved and Finland remains challenging," RBC said.

At current rates, it expects the Nordics to provide a small FX tailwind compared to a headwind last year.

At 0925 BST, the shares were down 6.4% at 116.40p.