Saturday 22 July 2017

Stock pick of the week: DCC - Buy

DCC is a distribution and business support services firm, operating across five divisions.

From an operational perspective, DCC Energy, which accounts for 60pc of operating profit, will look to further leverage the scale of its business.

It’s technology arm SerCom, which generates 20pc of profits, through its full service offering can benefit from new trends such as cloud computing, while the healthcare division is expected to benefit from greater outsourcing of services and greater use of generic drugs in the long term.

DCC’s share price is down almost 15pc year-to-date, and it appears to be trading at the lower end of its recent range.

Trading on 10 times forecast earnings, the valuation looks undemanding for a company with a number of strings to its bow.

These include balance sheet flexibility, an opportunity to expand its oil distribution footprint in Europe and scope for a re-rating with a larger energy business.

Other bonuses are a defensive characteristic of businesses and an attractive dividend yield and focus on return on capital.

Future acquisitions would likely help the share price, in our view.

Independent.ie stock picks are not explicit or implicit recommendations to buy or sell the shares mentioned, under the Market Abuse Regulations 2005. Merrion Stockbrokers may be corporate adviser to some of the shares chosen.

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