The Investment Column: Dixons impresses but there are clouds on the horizon

Dixons is a company that likes nothing better than to thumb its nose at its critics and it did so yesterday in some style. The stock market was treated to doubled profits, booming like-for-like sales increases and a share price which jumped 44.5p towithin touching distance of its year high. It could all have been so different.

The past six months has seen enough scare stories to make the Dixons share price go saggy at the knees. We have seen Sir Stanley Kalms, chairman of Dixons, sell a chunk of shares, Ken Clarke's final Budget introduce an insurance premium tax that could have knocked the company's warranty profits for six and an MMC inquiry into Recommended Retail Prices rear its ugly head.

Yesterday showed benefits of the two Ws - the weather and building society windfalls - to Dixons' current trading. But there is also an underlying message that Dixons might just deserve to be treated as a genuine growth company and less of a cyclical stock with a mean rating.

First the two Ws. The dismal June weather boosted Dixons' like-for-like sales as summer sunshine normally pushes consumers towards the garden and the summer clothing shops rather than hot electrical outlets.

Then the windfall factor is giving the company an immediate, if one-off, boost. Dixons admits it will not be able to sustain the 17 per cent like- for-like increases recorded in the first nine weeks of the current year. But even the 8 per cent figure recorded over the full year is impressive.

Added to this is new product opportunities provided by digital technology. Digital televisions, videos and so on are yet to hit the shops.

There are potential clouds on the horizon. Higher interest rates will have a dampening effect on consumer spending and Dixons' "clever clever" trick of mitigating the damage of the insurance premium tax is likely to be scrutinised by the OFT. The tax could have knocked pounds 30m from Dixons' Mastercare warranty service. But by re-jigging the insurance policy as a service contract it has reduced the VAT effect to less than pounds 10m.

With 70 stores to open this year across the Currys, The Link and PC World formats, Dixons' grip on the electricals market is growing ever tighter.

The question is whether Dixons has earned the right to be rated as a growth stock rather than a cyclical one. With some analysts hiking their full-year forecasts from pounds 215m to pounds 240m, that puts Dixons shares on a forward rating of 13. Things could look different in 18 months' time with the windfalls gone and higher mortgage rates. But for now, the shares look good value.