Dixons benefits from Comet's demise

Shares in Dixons rose on Thursday following news that its main High Street rival, Comet, is likely to go into administration, prompting one broker to upgrade its price target for Dixons.

Comet, the UK's second-largest electrical specialist after Dixons, is estimated to have made a loss of £35m in the year to April.

According to The Guardian, industry sources said Comet faced a cash crunch after trade insurers cut credit lines to suppliers, forcing them to ask for payment for goods upfront.

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Kate Calvert, Retail Analyst at Seymour Pierce, wrote in a note that although in the short term there may be some disruption as administrators discount Comet's stock to clear debts, Dixons should benefit from the removal of its rival.

"We reiterate our 'buy' recommendation on Dixons and raise our price target to 26p from 24p as we believe the probability of upgrades has increased given Comet's situation," she said.

"Dixons' position in its core markets of the UK and the Nordics continues to strengthen and the current valuation does not reflect the strong momentum in both regions driven by market consolidation and a strong innovation pipeline. The biggest value creation opportunity remains tackling the PIXmania and Southern European losses."

CM