LONDON -- The telecom sector is big news these days, with the likes of BT Group (NYSE: BT) even bidding against British Sky Broadcast Group (LSE: BSY.L) over the rights to show live Premiership football. (BT acquired the rights to 38 games to Sky's 116, if you're interested.)
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But the hottest bit of the telecom market is in mobile gadgets, and no matter who you think will do best in the bandwidth supply wars, the companies who sell the phones are likely to do just fine.
Well, that's the theory, but Carphone Warehouse (LSE: CPW.L) has seen its shares slide of late, even if you discount the big drop caused by the one-off special dividend paid from the proceeds of selling of its share in the Best Buy chain.
Sales down, profits up
Full-year results released today look, on first glance, to be a bit of a mixed bag, but I think they're actually quite positive, considering the economic climate.
Falling high-street revenues across European markets came as no surprise, as upgrading phones is something most people can delay or do without when there's a squeeze on spending. There also appears to be a dearth of cheaper, prepay smartphones available that cash-strapped fans of iPhones are looking for.
As a result, overall revenue dropped 5.5% to 3.3 billion pounds, with prepay phone sales falling 30% to 40% in some markets. But this was all pretty much expected, and headline pretax profit (excluding the one-off Best Buy sale proceeds) remained reasonable, coming in at 58.3 million pounds -- a little up on the 56.3 million pounds recorded a year previously. Underlying earnings per share rose half a pence to 12.6, and a full-year dividend of 5 pence per share was announced.
Next year's outlook
The firm also issued guidance for next year's EPS, suggesting a range of 11.5 pence to 13 pence for the year to March 2013.
The year ended with a small net debt figure of 29.4 million pounds, which isn't of any great consequence. The share price moved up 3.4% on the news and, at the time of writing, stands at 134 pence.
That 5p per share dividend, which was a little below some forecasts, represents a yield of 3.7%, and that seems likely to grow to around 4.5% next year. And the earnings figure of 12.6 pence per share places them on a price-to-earnings ratio of just over 10, which seems unlikely to change based on guidance for next year.
A critical year
The whole smartphone market seems to be in a bit of a hiatus at the moment, with makers struggling to compete with the iPhone at the top end of the market while still trying to introduce attractive models at the lower end of the price range.
This year's pre-Christmas season will be crucial, but in the long run the smartphone market is sure to keep bringing in the profits. And with Carphone Warehouse being the biggest phone retailer in the U.K. by some margin, it is surely the main one to consider.
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