DSGi turnaround fails to thrill

By Rachel Sanderson

LONDON (Reuters) - Europe's biggest specialist electricals retailer DSG International (DSGI.L) cut costs and lowered its dividend on Thursday as it prepares for U.S. heavyweight Best Buy's (BBY.N) expansion across Europe but analysts warned it would not be enough.

John Browett, DSGi's incoming chief executive, revealed the turnaround plan at the former Dixons group after two profit warnings.

He did not rule out selling underperforming Spanish and central European chains PC City and Electroworld, but shied away from announcing widespread store closures or job cuts.

The company's shares fell more than 10 percent and analysts warned the plan may not be radical enough to bolster the group's fortunes amid a consumer downturn and the arrival of larger rival Best Buy in Britain due next year.

"We still think the UK housing market and consumer slump, and the problems in Italy, will swamp the efforts of the new management team under John Browett to turn things around," Pali International analyst Nick Bubb said in a note.

Bubb reiterated his "sell" rating on the stock while brokers Panmure and Seymour Pierce also cut DSGi to "sell".

He noted the stock is still more expensive than peer Kesa (KESA.L) as it trades at more than 10 times 2008/09 forecast earnings.

Browett is a former director at Tesco (TSCO.L) who joined the group in December, acknowledged the launch of U.S. Best Buy in Britain will provide added competition and warned the consumer market there and in Italy was "very challenging".