DCC shares jump on break-up plan

DCC, the FTSE 100 conglomerate, has announced a major restructuring to focus on its energy business and sell off healthcare and technology units valued at about £2 billion.
The Dublin-based company has pledged to return cash raised from the break-up to shareholders in a move that prompted its shares to jump 14.2 per cent, or 704p, to close at £56.70.
The group has been operating three separate divisions for ten years but will now focus on its energy services. Analysts noted a simplification of the structure would lift its market valuation.
DCC already generates70 per cent of earnings before interest, tax, depreciation and amortisation from the energy division, which provides consulting services and energy products to customers, focused on commercial and industrial clients.
The group has said it will sell its healthcare division before the end of next year and is examining options for its technology division, which is a distributor for Apple and Microsoft products in the UK.
DCC Healthcare comprises its DCC Vital business, which sells products and devices to hospitals and GPs, and DCC Health and Beauty, which manufactures nutritional supplements and beauty products for the likes of Vitabiotics and Estée Lauder.
Donal Murphy, the chief executive, said: “In the energy sector we are building a unique, multi-energy, sustainable business focused on supporting our customers with their energy transition. Our strategy will deliver strong profit growth, high returns and a significant reduction in our customers’ carbon emissions.”
Analysts at Jefferies have estimated that DCC’s health operations could be worth about £1.3 billion and its technology business £800 million. Healthcare’s operating profit came in at £38.1 million for the first half of the financial year, while the technology unit generated operating profit of £38.5 million.
Murphy added: “Both businesses are in sectors that private equity in particular are actively trying to grow and consolidate within, and we believe those businesses will be highly attractive to a number of buyers. We think that will not only be good for DCC’s shareholders, but also very good for the workers within those businesses, because they will have new owners who start growing and developing those businesses.”
Meanwhile, DCC spent £130 million on acquisitions for its energy units, with the purchase of Wirsol, a solar panel and battery storage business in Germany, and Acteam ENR, a French solar panel business. The energy business includes Flogas, a supplier of liquid petroleum gas.
Updating investors on its half-year performance, DCC reported total revenues were down by 3 per cent to £9.3 billion for the six months ended September 30, while profit before tax rose by 1 per cent from £129.7 million to £131.0 million.
Murphy said he was pleased with the performance of DCC as a listed business, despite the disparities between company valuations in London when compared to rivals listed in New York.
He said: “It’s very easy to blame the market. But there’s a reason we are announcing this transaction today, and that’s to make our story much more compelling to shareholders, and we think we are a pretty elite business in the energy sector.
“We are committed to the London market and we think our story is very compelling, and we also think that the London market has a future and it’s not going to disappear.”
Analysts at Jefferies described the update as the “catalyst” for the group’s shares that the market had been expecting.
Sylvia Barker, an equity analyst at JP Morgan, said the update had “certainly delivered” on hopes of an improvement in its share price.
In a note, Jefferies said: “We have previously highlighted group complexity is weighing on the shares and view this as the hard catalyst the equity story needed that should unlock value.”
Analysts at Peel Hunt said: “DCC believes that its energy business and related opportunity in the energy transition presents the largest growth opportunity, at strong returns, available to the group.
“The decision to pursue the largest growth and returns opportunity and unlock shareholder value by focusing on energy aligns with DCC’s philosophy of disciplined capital allocation.”
How DCC became a sprawling provider of energy and services to households and businesses
DCC was initially established as a venture capital provider called Development Capital Corporation in 1976 and describes itself as Ireland’s first private equity vehicle.
The group developed expertise in business development and corporate finance through its financing of growing, unlisted companies, and has now morphed into a highly varied conglomerate through purchases in the energy sector, healthcare and technology distribution services. The company listed on the London stock exchange in 1994 and now has operations in 22 countries, employing more than 16,000 people.
Donal Murphy, the chief executive, said the company had been building up its client base in the energy sector through its sale of fossil fuel products such as liquified petroleum gas. DCC’s business in energy started when it bought Flogas, an Irish supplier of liquified petroleum gas, in 1977, but as the world moves to renewable energies, the clients it has been serving for years started demanding different sources of energy, and advice on how to rewire their businesses for the low-carbon era.
DCC has therefore gained a specialism in advising clients on how to switch to renewable supplies, as well as selling them the products they need to shift away from polluting fuels.
The group’s client base in the commercial and industrial sectors has proved particularly lucrative given the scale of the change required in those industries, as well as regulatory changes, such as the introduction of new reporting requirements.
This year, DCC also bought Next Energy, a retrofitting specialist, as it seeks to capitalise on growing demand for more insulation for homes across the UK, and a push to install solar panels on properties. The group already has a retail customer base as it is the largest home heating oil distributor in the UK.