LONDON (ShareCast) - (Sharecast News) - DCC has proposed raising up to £650m in an institutional share placing to fund further acquisitions, after it completed its second North American purchase of the year and said first-half operating profit will be "well ahead" of the prior year, driven by previous additions.
The Irish sales, marketing and support services group said there had been "strong" growth in its retail and oil, healthcare and technology businesses in the six months ending 30 September, with the liquid petroleum gas business in line with expectations.

Dublin-headquarter and FTSE 100-listed, DCC said group operating profits were in line with expectations for each division and overall, in what is its seasonally less significant half of the year.

"The group reiterates its belief that the year ending 31 March 2019 will be another year of profit growth and development," the company said ahead of interim results scheduled for 13 November.

Alongside this, DCC has splashed out $170m (£130m) on the purchase of Montreal-headquartered Jam Group, a provider of sales, marketing and other services in the professional audio, musical instruments and consumer electronics product sectors.

Jam, which has a network of sales offices and distribution centres across the US and Canada, made revenue of $323m in the year to last April and DCC expects the acquisition to add 4.5% to earnings per share from completion and to generate a return on capital employed of roughly 15% in the first full year of ownership.

Jam's management will continue to manage the business following the acquisition.

DCC chief executive Donal Murphy said the Jam acquisition "significantly strengthens" DCC Technology's position in the North American market, giving it around $600m in annual revenue and a strong focus on professional audio and visual, musical instruments and consumer electronics. Jam distributes more than 500 third party brands to circa 6,000 business-to-business and retail customers.

He said the "growing and fragmented nature of these markets will provide DCC Technology with further opportunities for development in the coming years". The market is expected to grow at 2-4% CAGR to 2022.

To gobble up some of these opportunities, DCC proposed an institutional share placing of up to 8.9m of its shares, or 10% of its current share capital, raising up to £650m.

Pointing to its 24 years of growth at a compound annual growth rate of 14.4%, and £900m spend on acquisitions over the past twelve months, Murphy said the net proceeds of the placing will "enable the continued implementation of DCC's targeted acquisition strategy, by enhancing the balance sheet strength and liquidity of the group, ensuring DCC can efficiently execute acquisition opportunities and remains a credible and capable acquirer".

Shares in DCC fell 4% to 7,015p by early afternoon on Thursday.

Broker Canaccord Genuity said the trading update was "encouraging" and viewed the placing "as a strong indicator of the level of M&A available to DCC", with the £270m spent on M&A in the first half indicating an accelerating trend compared to its £448m full-year average.

Analysts at RBC Capital Markets saw the announcements as "extremely positive", with the placing "a statement of intent in terms of the scale of the consolidation opportunities in its core markets". ]

DCC is currently trading on 21x 2019 earnings per share, "which we don't see as prohibitive for such a growth compounding story".

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