I last looked at international support services group DCC (LSE: DCC) back in September. Back then I said that although I expected continued growth over the medium term, the shares were beginning to look expensive after a 38% price surge over the previous 12 months. Indeed, the shares have now pulled back sharply from 14-year highs and perhaps present a buying opportunity for investors. So is now the right time to pick up shares in this diversified FTSE 100 business?
Strong first half
In its latest trading statement the Dublin-based group reported a very strong first-half performance, with operating profit increasing by an impressive 33% to £117.8m, compared to the same six-month period a year earlier. I was most encouraged by the fact that all four of the company’s major divisions recorded growth on the prior year.
The group’s largest division DCC Energy had an excellent first half with operating profit increasing by 43.8% to £76m, benefitting from acquisitions completed in the previous year and very strong performances from its LPG and Retail & Fuel Card businesses. DCC Energy sold 6.6bn litres of product, an improvement of 13.3% compared to the previous year, with volumes 0.4% ahead on a like-for-like basis.
Well positioned
The DCC Healthcare division also put in a good performance, generating operating profit growth of 7%, with its pharmaceuticals sales and marketing business DCC Vital growing its profits despite the trading headwind of weaker sterling. The Health & Beauty Solutions arm continued its track record of very strong organic profit growth and benefitted from the contribution of Design Plus, which has performed well since its acquisition in September 2015.
Trading as Exertis, the DCC Technology division also achieved strong figures in the first half, reflecting good organic profit growth and the benefit of the acquisition of cabling and connector products specialist CUC Group, which was completed at the end of 2015. The division looks well positioned to benefit from new consumer and enterprise technologies and to expand its service portfolio, while driving operational efficiencies.
Long-term growth
Finally, the group’s smallest division DCC Environmental, increased its operating profit by 26.7% to £10.7m. A strong performance in the UK was boosted by a very strong result in its hazardous waste business, where it has continued to expand its service offering, particularly in waste oil recovery and services to the water industry. The non-hazardous business also increased its profits, while continuing to invest in process improvement and efficiency measures.
I like the fact that DCC continues to have the ambition and capacity for further growth, and perhaps more importantly, has the opportunity to build substantial positions in its chosen market sectors as it increases in scale and geographic reach. Analyst consensus forecasts suggest continued steady earnings growth over the next three years, leaving the shares trading on a historically low earnings multiple of 18 for 2018/19. I see this as an excellent opportunity for investors to buy into long-term growth.
