Should you buy shares in DCC? Today’s options explained

Despite being a FTSE 100 name, DCC normally flies below investors’ radars. At first glance it is difficult to pin down exactly what the Dublin-based conglomerate does, given that it makes money from off-grid gas marketing, developing nutritional supplements, and manufacturing medical products, to name just a few.
But the group, which started life in the 1970s as a venture capital firm for start-ups, is now going for a slimmer look — boss Donal Murphy says he will focus on its energy business which already makes up roughly three quarters of the group’s £529 million in annual operating profit, and concentrate on “supporting our customers with their energy transition”.
So how does the nearly 50-year old conglomerate currently make money? It provides sales, marketing and support services across three sectors: energy, healthcare and technology. It characterises these divisions loosely as “what the world needs”.
• DCC shareholders set to gain €3.7bn return from private equity
The reality is that DCC has long been a hotchpotch of different businesses: in energy, it has a solutions service, where it helps its commercial, industrial and domestic customers transition to greener energy sources. Its energy mobility business is split in two lines — a retail network where it owns around 1,200 forecourts and supplies fuel to a further 1,300, and then its fleet services, which helps with the management of both heavy and light goods vehicles.
The healthcare division supplies providers with medical and diagnostic products as well as developing some consumer-focused nutritional supplements and beauty products for brand owners. The technology business also has its fingers in many pies, from helping other businesses install big screens to developing smart kitchen appliances.
The energy division has the best return on capital at 18.7 per cent, compared with technology and healthcare at 7.6 per cent and 10.2 per cent respectively. The plan is to sell the health division next year, which Jefferies, the investment bank, values at £1.4 billion, and the technology division, which analysts value at £800 million, will also be placed under strategic review. The cash will then be handed straight back to shareholders.
• DCC hits the high notes on energy transition stage
This means there is very strong potential for short-term returns, but what about the future of a solo energy business? A simpler investment case should be a major positive for DCC, especially as the health and tech businesses have recently been a drag on both growth and returns.
The energy business has delivered consistently. In the past decade it has achieved a compound annual growth rate of 16.4 per cent in its operating profit, with an average 101 per cent free cashflow conversion and a return on capital employed of 18.7 per cent. It is also running ahead of schedule in achieving its target in 2022 of doubling profits by 2030.
DCC Energy should be able to stand on its own two feet, with strong scale, and as such the ability to deliver solutions across multiple products. That is not to mention a full-service that includes everything from consulting, cost analysis, supply, installation and ongoing management. This breadth will be a significant advantage against its competitors, especially as energy transition requirements grow more complex from both a technological and regulatory standpoint.
DCC shares shot up 14 per cent after it unveiled its new strategy — it is, as Jefferies puts it, “the hard catalyst” the market had been waiting for. City analysts are very keen on the plan, with an average target price now £70.47, implying an upside of roughly 25 per cent.
This may take a while to come to fruition — indeed Jefferies flagged that it could be up to two years until there is a divestment from the tech business. Even so, the shares are not particularly expensive, trading at a forward price to earnings ratio of 11.7. With a clearer investment case, a green mission and a strong focus on returns, DCC looks like an attractive pick.
Advice BuyWhy Clearer focus on attractive energy business