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1 Curry Plc Financial Analysis and Valuation Name Course Name Tutor Institution Date Word Count: 2200

2 Table of Contents Introduction ................................................................................................................................................. 3 Strategic Appraisal of Currys Plc .................................................................................................................. 3 Discounted Cash Flow (DCF) Valuation Model ......................................................................................... 3 Table 1: Shows DCF Analysis ............................................................................................................. 4 Performance of Currys Plc and its Constituent Segments ............................................................................ 4 Profitability ratios .................................................................................................................................... 4 Operating profit margin ....................................................................................................................... 4 Net profit margin ................................................................................................................................. 5 Liquidity ratios ........................................................................................................................................ 5 Current ratio ........................................................................................................................................ 5 Cash ratio ............................................................................................................................................. 5 Efficiency ratios ...................................................................................................................................... 6 Asset turnover ratio ............................................................................................................................. 6 Fixed asset turnover ............................................................................................................................. 6 D/E ratio .............................................................................................................................................. 6 Equity ratio .......................................................................................................................................... 6 Investment ratios ..................................................................................................................................... 7 Return on equity .................................................................................................................................. 7 Return on Capital Employed (ROCE) ................................................................................................. 7 Calculation of the Valuation Range ............................................................................................................. 7 Asset Valuation ....................................................................................................................................... 7 Valuation based on Dividend Yield ......................................................................................................... 8

3 Comparison of Valuation based on different models focusing on assumptions and limitations and advice .8 Conclusion ................................................................................................................................................... 9 Reference List ............................................................................................................................................ 10 Appendices ................................................................................................................................................ 12 Appendix 1: DCF Model ......................................................................................................................... 12 Appendix 2: Performance of the Company based on ratio analysis ....................................................... 13

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4 Introduction Currys Plc is a United Kingdom (UK) multinational telecommunications and electrical retailer and services corporation with its headquarters in London, UK. It is the leading omnichannel retailer of technology services and products and operates via its 830 outlets and online in eight countries. In the UK and Ireland, the company trade as Currys while in Greece as Kotsovolos and in the Nordics as the Elkjøp brand. In the markets, the firm is the market leader while employing more than 32,000 people who are committed and capable colleagues (Currys PLC, 2023). The company was founded in 1884 by Henry Curry as a Curry Cycle Corporation, a bicycle manufacturing enterprise. In 1927, the company diversified and grew to offer other products such as toys, radios, and gramophones. They are now selling household appliances and home electronics. In addition, the company deals with offering the service they sell desktops, laptops, washing machines, television, printers, and refrigerators (MarketScreener, 2023). The annual report is aimed at analyzing and interpreting Curry’s financial statements. Different financial analysis and valuation approaches are applied to perform the report. The results gained are applied to measure the performance and position of the retailer. Currys’ stock is at present trading at 56.85 GBX with +4.99%. The DCF valuation model is applied to examine the strategic direction of Currys. The report also determines the performance of the firm and its constituent segments as measured by key performance indicators comprising the ROCE breakdown in light of the general liquidity and solvency of the firm. The report calculates the valuation range based on asset, multiples, market basis, and dividend yield. Lastly, the report compares the valuation based on various models, listing assumptions and limitations, and offering sound investment advice consistent with the entire report. Strategic Appraisal of Currys Plc Discounted Cash Flow (DCF) Valuation Model The model is the form of financial approach that determines if the investment is worthwhile as per the future cash flows. This model is centered on the concept that Curry’s value is measured by how well the firm generates its cash flows to investors in the future. DCF determines the firm’s present value (PV) by modifying future cash flows to the time value of money. In the

5 financial year 2021/22, the company had a revenue of £10,144m and a free cash flow of £72m (MarketScreener, 2023). Valuing a firm utilizing the DCF model is seen to be a key approach for private equity, investment bankers, buy-side investors, and equity research. It is presented in comparison to the firm’s market value. Currently, Currys Plc has a market capitalization estimated at £ 923.80m in March 2023. DCF model seeks to elaborate if the market price is justified as per the corporation’s expected future performance and fundamentals that is its intrinsic value (Wall Street Prep, 2022). Based on the DCF model analysis, it recommends that Currys Plc could be overvalued or that our assumptions might be wrong. It is assumed that the most significant inputs to the discounted cash flow are the actual cash flows and the discount rate as shown in Table 1, the market price and equity value are £345.99, while the DCF equity value is £333.74. In calculating the DCF, we applied 10%, which is according to the 2.00 levered Beta. Beta is derived from the industry average beta of globally comparable firms, having an imposed limit between 0.7 and 2.00, which is a considerable range for a stable business (Street, 2022). Table 1: Shows DCF Analysis DCF analysis for Currys Plc Market cap 923.8 Number of shares outstanding 2.67 million enterprise value (equity value 900.87 Equity value per share According to the market price £345.99 According to the DCF analysis £333.74 Performance of Currys Plc and its Constituent Segments Profitability ratios Operating profit margin The ratio determines how much profit the firm generates a dollar from the revenue after payment for the variable production costs, for instance, raw materials and wages. A company with a

6 margin of 10 percent is considered to have performed better while below 10% is seen as a low performance (Weygandt and Kimmel, 2022). HFD has a higher operating margin at 7.89% than Curry Plc at 2.19% as displayed in appendix 2 (Hargreaves Lansdown, 2023). Despite both companies having a margin of less than 10% and showing poor performance, HFD has shown an improvement in performance than Currys Plc. Net profit margin This ratio is determined by dividing net income by net sales revenue and multiplying it by 100%. A higher ratio is favorable because it implies, more cash is dispersed to the shareholders or can be invested in new opportunities. A ratio of 10% is seen to be average performance, and 20% good performance, while 5% is low performance (Soffer et al., 2014). HFD had a higher net profit margin ratio at 5.67% than Curry at 0.7% as shown in appendix 2. Both companies have performed lower but HFD has shown a slight improvement in its performance in the 2022 financial year (Lansdown, 2023). Liquidity ratios Current ratio The ratio compares the current assets of the corporation to its current obligations. A ratio equal to 1.0 or higher is seen to be good for many companies. However, a ratio below 1.0 is considered unacceptable for many firms. It implies the company experiences challenges in meeting its current obligations. HFD has a higher current ratio at 0.92 times in 2022 than Currys Plc at 0.79 times as revealed in appendix 2. Nonetheless, both companies have a current ratio that is below 1.0 times, implying both struggles to meet their short-term liabilities when due (Lansdown, 2023). It shows that they both have low liquidity and they might imminently experience bankruptcy. Cash ratio The ratio determines the capacity of an organization to cover its current obligations using its cash and cash equivalents only. A ratio more than 1.0 is seen to be good but a ratio below 0.5 is perceived to be risky because the company has twice as many current loans compared to its cash and cash equivalents (Sekhar, 2020). HFD has a higher cash ratio at 0.12 times than Currys Plc at 0.01 as shown in appendix 2. However, both firms have shown poor performance based on cash

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7 ratio because they are all under 0.5 times which implies that these two companies are at risk due to low liquidity. Efficiency ratios Asset turnover ratio This ratio determines the company’s assets' efficiency in generating sales revenue. A ratio of below 1.0 is considered low performance and 1.0 or more is seen to be favorable or acceptable (Schroeder et al., 2019). Currys Plc has a higher ratio at 1.47 times than HFD at 1.07 as illustrated in appendix 2. Both companies have performed better in terms of asset turnover ratio as it is above 1.0 times, implying they were efficient at generating revenues using their assets (Soffer et al., 2014). Fixed asset turnover This ratio depicts how efficient the firm is to generate revenues from its current non-current assets. A ratio that is higher than 1.0 is always acceptable but below 1.0 is considered low performance. Currys Plc fixed asset turnover ratio was higher at 2.12 times than HFD at 1.5 times as illustrated in appendix 2. Both companies have performed well in using their non- current assets to generate revenues as they registered a ratio higher than 1.0 times, although Currys Plc has performed exceeding well compared to HFD. Gearing ratios D/E ratio This ratio depicts how many loans the firm has against its assets. A ratio below 100% is considered relatively safe, while values above 100% or more could be seen to be risky to the company. Typically, a specifically low ratio can be negative revealing the company fails to utilize debt financing and its benefits over taxes. Currys Plc had a higher D/E ratio at 176.4% than HFD at 131.96% as depicted in appendix 2. The ratios show that both firms are at risk because they have a higher ratio above 100%, although Currys Plc is at higher risk than HFD. Equity ratio The ratio determines the amount of leverage applied by a corporation. When the ratio approaches 100%, it implies that the corporation has funded approximately all of its assets using equity

8 financing but a 40% is seen to be acceptable (Park, 2017). HFD had a higher ratio at 43.1% than Currys Plc at 36.2% as shown in appendix 2. It shows that both companies are financing their assets with more than 50% using debt funding and the rest equity. Currys Plc is performing poorly because its ratio is below the acceptable level which shows that shareholders are at risk in their investment, while HFD has performed slightly better to put their investors at risk of using more debts that affect the company’s performance (Savio et al., 2019). Investment ratios Return on equity This ratio determines the company’s financial performance. A stable and higher ROE is typically good, even though an absolute value needs to be regarded in the industry’s context. A 10% ratio is seen to be average, while 15 to 20% is viewed to be better. However, a ratio below 5% is seen to be poor performance (Michael and Albert J., 2014). Based on ROE, HFD recorded a higher ratio at 14.10% than Currys Plc at 2.8% as illustrated in appendix 2. HFD has performed average and better than Currys Plc which presented poor performance. Return on Capital Employed (ROCE) The ratio is applied to evaluate the capital efficiency and profitability of a corporation. At a minimum, a ratio of 20% is considered a good indicator of profitability and the firm has better financial health, while 10% is an average performance with below showing low performance (Lessambo, 2022). HFD had a higher ROCE at 12.3% than Currys Plc at 5.3% as depicted in appendix 2. HFD has performed average, while Currys Plc has shown low performance in terms of this ratio. It means HFD has average financial health but Currys Plc has a risky financial position (Maynard, 2017). Calculation of the Valuation Range Asset Valuation It involves a process of measuring the current value of the corporation’s assets, for instance, stocks, goodwill or equipment, or plant. The model of asset-based value is equal to the book value of a company or shareholder’s equity. In this case, we use the income approach to value the assets (CSBE, 2023).

9 Currys Plc.’s Stock value = net operating income (NOI)/market capitalization rate NOI for the company in the financial year 2020 was £222 million while the market cap rate Capitalization rate = NOI/current market value of the asset The chosen Capitalization rate for the company is 8% Stock value =£222/0.08 = £ 2775 million. Valuation based on Dividend Yield Dividend yield refers to a ratio that determines the annual value of dividends gained relative to the market value per security share. Investors who value are attracted to stocks that have high yields; given the dividend payment is secure. It is calculated by dividing the annual dividends by the present stock price (Fidelity International, 2023). DY = annual dividend/current stock price Annual dividends =2.1975 Current stock price 56.50 GBX DIY= 2.1975/56.50*100 =3.89% Comparison of Valuation based on different models focusing on assumptions and limitations and advice The assumption based on the asset valuation approach using the income capitalization method is an investor utilizes today’s money to generate future earnings. It converts the income stream to the sign of market value. People buy assets for future benefits or the income they will generate. Investors also approximate the duration, quality, and quantity of the expected income stream. However, the limitation of using this approach to value assets is accuracy relies on the validity of the assumptions applied to approximate its main variables (CSBE, 2023).

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10 The dividend yield model is based on a presumption that the current stock price is fair and equals the total of all the firm’s future dividends discounted back to its present value. However, its limitation is the challenge of accurate forecasts, an aspect that fails to consider buybacks and its basic assumptions of earnings only from the dividends (Chacko and Evans, 2014). DCF model of valuation assumes that the asset or company is projected to generate cash flows in the given time frame. It considers the time value of money in which money today is worth more in the coming years. The limitations to this model are susceptible to over-complexity, high details level that can lead to overconfidence, and considering the firm valuation based on isolation cases (Allee et al., 2020). However, despite these shortcomings, I may advise investors and analysts to use the DCF model in valuation because it considers the time value of money and focuses on details to decide the valuation of a company (Corporate Finance Institute, 2022). Conclusion The report has presented an analysis and evaluation of Currys Plc to determine its value based on the DCF valuation model. The model has shown that Currys Plc.’s stock value could be overvalued in the market. Further, the performance of Currys Plc in comparison to its competitor, HFD has shown that the company has low liquidity, ROCE, and solvency issues but its competitors seem to have a better financial position in the industry as it has presented strong performance indicators based on the analysis of key ratios in major constituents.

11 Reference List Currys PLC. (2023). At a glance . https://www.currysplc.com/about-us/at-a-glance/ Hargreaves Lansdown. (2023). Currys plc (CURY) ordinary 0.1p statements & reports . https://www.hl.co.uk/shares/shares-search-results/c/currys-plc-ordinary-0.1p/ financial-statements-and-reports Lansdown, H. (2023). Halfords (HFD) ordinary 1p shares statements & reports . Hargreaves Lansdown. https://www.hl.co.uk/shares/shares-search-results/h/halfords-ordinary-1p- shares/financial-statements-and-reports MarketScreener. (2023). Currys plc . https://www.marketscreener.com/quote/stock/CURRYS-PLC-4002371/company/ Street, S. W. (2022, December 20). A look at the intrinsic value of Currys plc (LON:CURY) . https://finance.yahoo.com/news/look-intrinsic-value-currys-plc-085834094.html Wall Street Prep. (2022, August 26). DCF model training . https://www.wallstreetprep.com/knowledge/dcf-model-training-6-steps-building-dcf- model-excel/ Allee, K. D., Erickson, D., Esplin, A. M., & Yohn, T. L. (2020). The characteristics, valuation methods, and information use of valuation specialists. Accounting Horizons , 34 (3), pp.23-38. Chacko, G., & Evans, C. L. (2014). Valuation: Methods and models in applied corporate finance . FT Press. Corporate Finance Institute. (2022, October 4). DCF analysis pros & cons . https://corporatefinanceinstitute.com/resources/valuation/dcf-pros-and-cons/ CSBE. (2023). Lesson 20 - Summary (The Income Approach to Value) . Retrieved March 30, 2023, from https://www.boe.ca.gov/info/iav/lesson20.htm Fidelity International. (2023). Currys PLC share dividends | CURY | GB00B4Y7R145 | Fidelity . https://www.fidelity.co.uk/factsheet-data/factsheet/GB00B4Y7R145-currys-plc/ dividends Lessambo, F. I. (2022). Financial ratios analysis. Financial Statements , 6 (4), pp.229-275. Maynard, J. (2017). Financial accounting, reporting, and analysis . Oxford University Press.

12 Michael, R., and Albert J., P. (2014). Ratios description. Financial Ratios for Executives , 8 (2), pp.7-105. Park, A. (2017). Financial ratio analysis: The guide for investors, managers, and small business . Savio, R. A., Kassaye, T. F., and Kumaravelu, S. V. (2019). Financial accounting, reporting and analysis practices of NGO'S . LAP Lambert Academic Publishing. Schroeder, R. G., Clark, M. W., and Cathey, J. M. (2019). Financial accounting theory and analysis: Text and cases . John Wiley & Sons. Sekhar, C. (2020). Financial ratio analysis: 45 ratios with theory & interpretation of financial statements can useful for students, job interviews, investors, fund managers .. . Chandra Sekhar. Soffer, L. C., Revsine, L., Mittelstaedt, F., Daniel W. Collins, P., and Bruce Johnson, P. (2014). Financial reporting and analysis . McGraw-Hill Education. Weygandt, J. J., and Kimmel, P. D. (2022). Financial accounting with international financial reporting standards . John Wiley & Sons.

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13 Appendices Appendix 1: DCF Model Currys Plc Unlevered Free Cash Flows Period (t) 2022A 2023P 2024P 2025P 2026P 2027P Levered free cash flows(L) 222 151.8 104.7 124.7 88 78.6 Discount rate (r - 10% 10% 10% 10% 10% PV of UFCFs 138 86.52893 93.689 128.841 126.5861 Total PV 573.6447673 Terminal Value Long-term growth rate 8% PVFCFs £573.64m Terminal value (TV)= FCF- 2027*(1+g) /(r-g) long term growth rate 1% 2027 FCF 66 Terminal value =(£66m*(1+1.0%)/(10- 1.0%)) £ 527m Present value of terminal value=(TV/(1+r)^5 327.2255373 PV of TV £ 327.23m Total Equity value 900.87 £900.87m

14 No. of current shares outstanding (2.67 million) 3 Equity Value 337.4044944 £333.74 DCF analysis for Currys Plc market cap 923.8 n enterprise value (equity value 900.87 Equity value/ share Base on market price 345.9925094 according to the DCF analysis £333.74 Appendix 2: Performance of the Company based on ratio analysis Ratio Analysis as Key Performance of Currys Plc and Halfords Group (HFD) for Financial Year 2022 Amount in £million Calculation of ratios Ratio Categories Formula Curry Plc HFD Curry plc HFD Profitability Ratios Operating profit margin (%) operating profit /Revenue 2.188485804 7.87821262 operating profit 222 108 Net sales revenue 10,144 1,370 Net profit Margin % Net profit /Revenue 0.699921136 5.67318925 Net profit 71 78 Net sales revenue 10,144 1,370

15 Liquidity Ratios Current ratio (times) CA/CL 0.790603034 0.92436764 Current assets(CA) 2,137 369 current liabilities (CL) 2,703 399 Cash ratio cash&cash equivalents/CL 0.046614872 0.11595292 Cash&cash equivalents 126 46 Current liabilities 2,703 399 Efficiency ratios Asset turnover (Times) Net sales revenue/TA 1.467380298 1.07159064 Net sales Revenue 10,144 1,370 Total Assets 6,913 1,278 Fixed asset turnover (Times) Revenue /Total fixed assets 2.123953099 1.50671067 revenues 10,144 1,370 Total fixed assets 4,776 909 Financial Gearing ratios Debt-to-equity ratio (%) Total debt /total equity 176.4094362 131.960073 Total debt 4,412 727 Total equity 2,501 551 Equity ratio (%) Total Equity/total assets 36.17821496 43.1108677 Total equity 2,501 551 Total asset 6,913 1,278 Investment Ratios Return on Equity (ROE) % Net income/ equity 2.838864454 14.1016334 Net income 71 78

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16 Shareholders' equity 2,501 551 ROCE (%) EBIT/Capital Employed EBIT 222 108 5.273159145 12.2781065 Capital employed (T.A - C.L) 4,210 878.80

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