E-commerce Trends Will Shrink Retail Market Potential

Key Takeaways

• Growing online competition and shifting consumer behaviors threaten Currys' in-store relevance, shrinking market share and pressuring margins.
  
• Demographic changes and product durability reduce demand, while price competition and commoditization erode profitability despite cost-cutting efforts.
  
• Rapidly growing service-based revenues, leading market positions, investment in digital and omnichannel, and business diversification are strengthening Currys' resilience, profitability, and shareholder returns.

Catalysts

Operates as a omnichannel retailer of technology products and services in the United Kingdom, Ireland, Norway, Sweden, Finland, Denmark, Iceland, Greenland, and the Faroe Islands.

• The long-term migration of consumers to e-commerce giants and direct-to-brand online sales threatens to shrink Currys' addressable market, weakening both revenue growth and gross margins as online competition intensifies and differentiated in-store experiences become less relevant.
  
• Persistent consumer preference for repairing rather than replacing electronics, paired with increasing product durability, is expected to suppress the demand for new devices and major appliances, limiting Currys' long-term sales potential and putting structural pressure on future revenue streams.
  
• Demographic shifts toward an aging population and a slowdown in new household formation, especially in core UK and Nordic markets, are likely to diminish average transaction sizes and purchase frequency, undermining Currys' ability to grow its customer base and resulting in lower rates of revenue and earnings growth over the coming years.
  
• Despite management's focus on cost discipline and store optimization, ongoing pressure to discount and compete on price will likely erode operating margins, while any underinvestment in digital capabilities could accelerate market share losses to more agile, tech-focused competitors, further compressing net profits.
  
• As global electronics pricing continues to deflate and the sector suffers from commoditization, Currys' efforts to expand into adjacent categories or enhance recurring services may prove insufficient to offset margin declines and revenue headwinds, exposing the company's earnings to cyclical and secular industry declines in the medium to long term.

Currys Future Earnings and Revenue Growth

Assumptions

• This narrative explores a more pessimistic perspective on Currys compared to the consensus, based on a Fair Value that aligns with the bearish cohort of analysts.
• The bearish analysts are assuming Currys's revenue will grow by 1.6% annually over the next 3 years.
• The bearish analysts are assuming Currys's profit margins will remain the same at 1.2% over the next 3 years.
• The bearish analysts expect earnings to reach £106.9 million (and earnings per share of £0.1) by about July 2028, down from £108.0 million today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the price target of the more bearish analyst cohort, the company would need to trade at a PE ratio of 15.0x on those 2028 earnings, up from 11.9x today. This future PE is lower than the current PE for the GB Specialty Retail industry at 23.6x.
• Analysts expect the number of shares outstanding to decline by 1.47% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 10.01%, as per the Simply Wall St company report.

Currys Future Earnings Per Share Growth

Risks

• Strong recurring revenue streams from credit, repair, connectivity, and services are growing rapidly and now comprise a significant and rising portion of the top line, increasing resilience and supporting future revenue and earnings growth.
  
• Currys holds #1 market positions in both the UK and Nordics, with demonstrated market share gains in core and adjacent categories, which support sustainable revenue growth and improved operating leverage.
  
• Ongoing investments in digital infrastructure, omnichannel experiences, and store optimization have led to higher conversion rates and improved customer retention, supporting long-term gross margin expansion and higher net margins.
  
• Expansion into new categories (such as health and beauty, accessories, outdoor, and B2B) leverages existing operational and supplier strengths and presents substantial headroom for revenue growth, diversifying the business and underpinning profit growth.
  
• A dramatically strengthened balance sheet, reduction of pension deficits, and higher free cash flow generation provide the capacity for increased shareholder returns through dividends and buybacks, directly supporting earnings per share and share price appreciation.

Valuation

• The assumed bearish price target for Currys is £1.15, which represents the lowest price target estimate amongst analysts. This valuation is based on what can be assumed as the expectations of Currys's future earnings growth, profit margins and other risk factors from analysts on the more bearish end of the spectrum.
  
• However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of £1.8, and the most bearish reporting a price target of just £1.15.
  
• In order for you to agree with the bearish analysts, you'd need to believe that by 2028, revenues will be £9.1 billion, earnings will come to £106.9 million, and it would be trading on a PE ratio of 15.0x, assuming you use a discount rate of 10.0%.
  
• Given the current share price of £1.17, the bearish analyst price target of £1.15 is 2.1% lower. The relatively low difference between the current share price and the analyst bearish price target indicates that the bearish analysts believe on average, the company is fairly priced.
  
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.