The DCC (LSE:DCC) share price is falling this morning (5 February) after an uninspiring update. But I hold the stock and it’s also at the top of my list of FTSE 100 shares to snap up imminently assuming the price stays low.
The firm is looking to divest its Healthcare and Technology operations, leaving the Energy division behind. And for the time being, this is probably more important than the latest set of trading results.
No surprises
According to DCC’s management, trading during the last three months of 2024 was broadly in line with the previous year. Slight growth in operating profits was offset by foreign exchange rates.
The Energy division produced good growth in operating profits. And management reported a strong pipeline of acquisition opportunities going forward to maintain this momentum.
This is arguably the most important bit of the business for long-term investors to pay attention to. It’s the part that the company is planning on retaining, so the latest results are reasonably encouraging.
In the short term though, it’s probably the Healthcare business and the Technology unit that are more important. These are the operations the firm is looking to divest.
A potential buyer might be able to boost returns through synergies or economies of scale, but strong results from these subsidiaries probably helps DCC’s chances of achieving a good price for them.
The latest update reported a steady performance in Healthcare and a slight decline in Technology. In the context of a largely flat previous six months, I think this is mostly unremarkable.
Divestitures
The big question for investors though, is around the planned divestitures and how things are progressing on this front. And the latest update doesn’t have much to say on this front.
DCC reported that the process of divesting the Healthcare division is progressing in line with expectations. And the intention is still to complete this in 2025.
There’s a lot at stake here for investors. DCC has announced that the state of its balance sheet means it’s set to return the proceeds to shareholders via dividends – and this could be significant.
Analysts estimate the Healthcare and Technology subsidiaries together could be worth around £2.1bn. If the firm can achieve this, around 38% of the current market cap could come back to investors.
That would leave the Energy business, which has been the source of the recent growth and accounts for 80% of the company’s operating profits. At the current prices, this could be good value.
Obviously, the risk for investors is that DCC might not be able to achieve the prices analysts are anticipating. And the latest results from the Healthcare and Technology units probably increase this.
Top of my list
I still think the overall business is worth more than the current market cap. So with the company looking to divest some of its operations to realise this, I’m still looking to buy DCC shares.
The latest trading statement doesn’t do anything to change this. A stronger performance from the divisions it’s looking to sell would be welcome, but this is still my top FTSE 100 pick.
This post was originally published on Motley Fool
