Dixons warranty fears are zapped

DIXONS and Kesa Electricals breathed a sigh of relief that the crackdown on extended warranties will be less stringent than feared.

Retailers will be allowed to sell lucrative extended warranties on electrical goods, but conditions will be imposed to make the market more competitive.

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But Philip Dorgan at WestLB Panmure reckons the reforms could knock £20m off Dixons' profits. This has been priced into the shares, which have been under a cloud during the 18-month probe. They trade on 11 times current year earnings compared to a sector average of 14, which Goldman Sachs reckons is too cheap.

Electrical warranties account for about a third of Dixons' profits. According to the Competition Commission, the industry sold 18.5m extended warranties in 2001, generating £900m of sales.

Dixons chief executive John Clare said: 'We disagree with the conclusion that the market for extended warranties is unfair, uncompetitive or that there is excessive pricing.'

The retailer rejects that it has been profiteering from consumers. But the Commission says Dixons, Comet, Powerhouse, Littlewoods and Argos collectively made between £116m and £152m in excess profits every year between 1997 and 2001.