Currys PLC: Diversified Revenue and Margin Expansion Fuel Growth Potential

In a retail landscape increasingly dominated by online giants, Currys PLC (LSE: CFG) has carved out a compelling narrative of resilience and reinvention. By diversifying its revenue streams and executing strategic margin expansion, the UK-based electronics retailer is positioning itself for sustained growth amid macroeconomic headwinds. Let's unpack the drivers behind this transformation and assess its investment potential.

A Diversified Revenue Engine

Currys' 2024-2025 results underscore a shift from reliance on traditional product sales to a balanced mix of recurring services, credit offerings, and omnichannel growth. Total revenue rose 3% to £8.7 billion, but the real story lies in its recurring revenue streams:
- Recurring Services: Revenue from commissions, support, and connectivity grew 9% to £814 million. This includes iD Mobile's 26% subscriber surge to 2.2 million, now a core growth lever.
- Credit Sales: A standout performer, with £1.1 billion in revenue (+14% YoY), reflecting strong adoption of its flexpay offering.
- Omnichannel Synergy: The “order & collect” model, which combines online convenience with in-store pickup, grew 15% and now accounts for 34% of online revenue. This hybrid model reduces cart abandonment while boosting store foot traffic.

These services now represent nearly 10% of total revenue, creating a recurring revenue moat against pure-play competitors.

Margin Expansion: A Strategic Play

While top-line growth is notable, Currys' profit margins have also improved dramatically, driven by two key strategies:
1. Cost Discipline: The Group centralized marketing functions to save £10 million annually and optimized capital expenditures, reducing CapEx to £95 million.
2. Gross Margin Optimization:
- UK&I gross margin expanded 20 bps to a level 240 bps higher than four years ago, fueled by higher-margin services and supply chain efficiencies.
- Nordics gross margin jumped 60 bps, nearing historic highs as pricing and cost controls took hold.

The result? Adjusted EBIT margins are now above 3% in both regions, a significant milestone.

Growth Catalysts Ahead

Currys has identified clear pathways to sustain momentum:
- High-Margin Tech Categories: With Windows 10's end-of-life driving upgrades and AI adoption surging, Currys' 75% UK share in Windows AI computing positions it to capitalize.
- New Markets: Expansion into untapped sectors like health tech and pet tech, alongside B2B sales (targeting a tripling of UK B2B revenue over three years).
- iD Mobile Scaling: Management aims to hit 2.5 million subscribers by year-end, unlocking further recurring revenue.

Financial Fortitude and Shareholder Returns

The balance sheet is a standout asset:
- Net Cash of £184 million: The strongest position in over a decade, enabling reinvestment and shareholder-friendly moves.
- Free Cash Flow: Soared 82% to £149 million, underpinning a proposed 1.5p final dividend—a return to shareholder distributions after a pause.

With plans to reduce exceptional cash costs to under £10 million by 2026/27 and potentially resume buybacks post-pension review, Currys is primed to reward investors.

Risks and Considerations

• UK Inflation Pressures: £32 million in additional annual costs from recent policies could test margin resilience.
• Nordic Headwinds: Store closures and currency fluctuations remain risks, though profitability is improving.
• Competition: Aggressive pricing by online rivals like Amazon could squeeze margins if unchecked.

Investment Thesis

Currys' blend of recurring revenue diversification, margin discipline, and strategic growth focus makes it a compelling play in a consolidating retail sector. With a low valuation (currently trading at ~10x forward EV/EBITDA vs. peers at 12-15x) and a balance sheet capable of funding expansion, the stock offers both growth and stability.

Recommendation: Currys presents a rare opportunity in a challenged retail environment. Investors seeking exposure to a UK tech retail leader with clear margin upside and shareholder-friendly policies should consider accumulating shares on dips. Monitor progress on iD Mobile subscriber growth and UK B2B expansion as key near-term catalysts.

In conclusion, Currys PLC is not just surviving—it's evolving. By leveraging its hybrid retail model and data-driven services, it's proving that the future of retail isn't online or offline, but the seamless fusion of both.