DCC has moved to abandon its conglomerate roots with a plan to sell its healthcare division and review “strategic options” for its technology business as it focuses on the energy sector.
Shares in the Dublin-based, but London listed company soared as much as 17.4 per cent on Tuesday, before closing up 14.2 per cent.
The distribution and services conglomerate that sells everything from catheters to hospitals to audiovisual equipment to events companies, said on Tuesday that that it has begun preparations for a sale of its healthcare unit, which is expected to complete next year. Investment bankers in JP Morgan are advising on the sale.
DCC will also weight strategic options for its technology unit, following completion of a “value enhancing operational improvement programme”, within the next 24 months, it added in a statement. Group chief executive Donal Murphy told The Irish Times he is targeting up to a £30 million profit boost from that programme.
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DCC said it believes that its energy business – now by far its largest division – and related opportunity in energy transition presents the largest growth opportunity, at strong returns, available to the group.
“In the energy sector we are building a unique, multi-energy, sustainable business focused on supporting our customers with their energy transition,” said chief executive Donal Murphy. “Our strategy will deliver strong profit growth, high returns and a significant reduction in our customers carbon emissions.”
DCC, founded in 1976 by businessman Jim Flavin as a provider of venture capital for start-ups before floating in 1994, has simplified its investment case significantly since it quit the Irish market for a sole listing in London 11 years ago.
It sold its food and beverage assets, including the Robert Roberts tea and coffee and Kelkin health foods brands, as well as a frozen and chilled foods logistics business, in 2014, and its environmental unit, covering recycling and waste management, three years later.
Davy analyst Colin Grant said Tuesday’s strategic update is the most significant since the company listed 30 years ago. He said that the healthcare division could achieve as much as £1.45 billion, while the technology business could fetch over £800 million. DCC currently has a market value of £4.9 billion.
While some analysts and investors have long been cautious on its continuing conglomerate structure, Mr Murphy defended it as recently as May, when he told The Irish Times that if DCC “had listened to what people had told us we should get out of over the years we’d be in no business today”.
Mr Murphy said that the opportunities for DCC in the green energy transition have increased since he made that comment.
“The removal of a conglomerate discount [on DCC’s shares] and the likely premium on disposal for the healthcare, and subsequently tech divisions are both positives,” said Goodbody Stockbrokers analyst Kenneth Rumph.
The DCC Energy division’s share of group operating profits grew to almost 74 per cent for the company’s financial year to the end of March from 70 per cent for each of the two previous financial periods. Earnings at the unit have grown at an compound average rate of 16.4 per cent a year over the past decade.
Most of its profits have been coming from the sale of fossil fuels, including oil and gas sold for household heating and fuel pumped through its 1,175 petrol stations across Scandinavia, France, Britain and Ireland.
However, Mr Murphy’s team has invested heavily in recent years – mainly through acquisitions – in products and services to help businesses and households make the green transition. These include solar panel and heat pump installation businesses.
The company now has pumps offering low-carbon renewable diesel (hydrotreated vegetable oil, or HVO) in fuel service stations across Europe as well as an expanding network of electric vehicle (EV) charging points.
DCC Energy’s so-called green transition services, renewables and other business (SRO) accounted for 35 per cent of the division’s earnings last year, up from 22 per cent two years earlier.
DCC Energy “has long been the star performer in terms of growth and returns in DCC, and the energy transition offers unique opportunities,” said Mr Grant at Davy.
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