Tuesday 21 August 2018

DCC shares soar after strong forecast and more acquisitions

Tommy Breen of DCC. Picture: Ronan Melia
Tommy Breen of DCC. Picture: Ronan Melia
John Mulligan

John Mulligan

Shares in diversified Irish group DCC soared more than 7pc at one stage yesterday after it forecast full-year results that will be ahead of market expectations.

The group, headed by chief executive Tommy Breen, also said that it has agreed to buy a natural gas distributor in France for an initial €110m, as well as Bray-based medicine importer Medisource for €32m.

DCC's share spike helped buoy the UK's FTSE-100, where the Dublin-headquartered company is listed.

The company's group operating profit jumped by a third to £117.8m (€137m) in the six months to the end of September - traditionally DCC's quietest period. Revenue was 10.5pc higher at £5.6bn (€6.5bn). Excluding fuel sales, revenue was up 5.1pc at £1.47bn (€1.71bn).

The acquisition of French natural gas distributor Gaz Europeen solidifies DCC's presence in the country. Last year, it paid €464m to buy LPG distributor Butagaz. DCC also owns petrol stations in France, which it acquired from Esso.

Gaz Europeen supplies gas to customers including apartment blocks, public authorities and the service sector in France. It generated €205m in revenue last year, and an operating profit of €15.7m.

Medisource procures and sells so-called exempt medicinal products. Such products are imported to Ireland in order to meet requirements of specific patients where no suitable alternative product is available here. The products are typically licensed in another jurisdiction.

Medisource is controlled by its operations director, Barry McClelland, and his family, as well as ceo, Paul Boland. The firm generated an operating profit of just under €1m in the 12 months to the end of April 2015, and had shareholder funds of €8.2m.

The acquisitions of Gaz Europeen and Medisource are expected to close in the first quarter of 2017.

DCC's net debt at the end of September was just £112m, with total equity of £1.4bn, cash resources net of overdrafts of £1bn, and a further £400m of undrawn, committed debt facilities.

The figures don't include the latest planned acquisitions, or the planned purchase of UK-based technology distributor Hammer.

Speaking to the Irish Independent, Mr Breen said that DCC retains significant capacity to make acquisitions.

"We look at lots of stuff that's not right for us, and some stuff where we think it's too pricey," he said. "One of the challenges is to stay disciplined. When you've a strong balance sheet and you have an appetite to do things, it's easy to end up over-paying. We don't always get it right, but the discipline is pretty important."

DCC's units include its energy division, which is the biggest distributor of home heating oil in the UK. It also has a technology distribution, environmental, and healthcare units.

Mr Breen added that despite having strong cash flow, DCC has never ended up sitting on piles of cash.

"We have driven pretty strong returns for shareholders over 23 years all on a lowly leveraged balance sheet," he said. "We've managed to do it in a low-risk way."

Mr Breen said that DCC management will be "quite happy" to continue delivering returns to shareholders in that way. He also said that the slump in sterling following June's Brexit vote in the UK has had little overall impact on the company. However, it did report a foreign exchange tailwind in the first half.

Irish Independent

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