DFS Furniture PLC

DFS Furniture PLC (LON: DFS) is the United Kingdom-based company which manufactures, designs and distributes living room and upholstered furniture products since 1969.

On 9^th July 2020,the group will announce its next trading update.

Recent News
On 25^th March 2020, the company has temporarily shut down all its showrooms, manufacturing and distribution operations post government announcement on 23 March 2020 to curb coronavirus outbreak

Interim Results Highlights – for the period of 26 weeks ended on 29^th December 2019 (GBP Million)
 
(Source: Interim Report, Company Website)

On 10^th March 2020, the Group has released its H1 FY20 results(ended on 29^th December 2019), the group revenue for H1 FY20 has declined by 5.7% to GBP 488.0 million, primarily influenced by challenging market conditions and political uncertainty, impacting the consumer confidence and footfall. However, online sales grew by 4.5% to £117m in H1 FY20 (H1 FY19 £112m). The underlying profit before tax pre IFRS 16 plunged 17.5% to GBP 20.5 million in H1 FY20. Consequently, the basic underlying EPS pre IFRS16 declined by 46.8% to 7.4 pence in H1 FY20. However, the net debt and dividend per share remained flat as compared with the same period the previous year.

Share Price Performance
 
Daily Chart as of March 27^th, 2020, after the market closed (Source: Thomson Reuters)

DFS Furniture’s shares closed trading session at GBX 117 on 27^th March 2020 and was down by 16.43% versus the previous day closing price. Stock's 52 weeks High is GBX 302.00 and Low is GBX 101.80.
 
Valuation Methodology

*Peers: B&M European Value Retail SA, Nobia AB, Victoria PLC and U10 SA
 
Conclusion
 
During H1 FY20, the group’s revenue (plummeted 5.7% year on year) and profitability declined drastically while gross profit declined £16.9m to £281.8m due to lower revenues. The uncertainty around Brexit also reduced the consumer confidence and thus footfall.
 
Going forward, the store closures and lockdown scenario amid Covid-19 contagion would further affect the financials in H2 FY20 and eventually full-year results. The supply chain issues would keep impacting the company at least in the short run. In such an environment, financial implications would be coupled with liquidity crunch and fluctuating exchange rates.
 
However, the company is focusing on expanding its growing Sofology business since this division shown growth despite the challenging conditions. Besides, short term uncertainties, the management is confident about the financial strength and upcoming strategies to tap the long-term future opportunities.
 
Based on the factors highlighted above, we recommend investors to keep a “Watch” on the stock at the closing price of GBX 117.00 (as on 27^th March 2020), with support from new catalysts to be evaluated at a later stage.  
 

Royal Mail PLC

Royal Mail PLC (LON: RMG) is a London, the United Kingdom-headquartered Industrial Transportation group having operations spread internationally. The company presently operates in approximately 44 countries globally with around 143,000 people and delivering over 13 billion letters annually to 30 million homes and businesses.

Pursuant to the guidance of Financial Reporting Council (FRC) and the Financial Conduct Authority (FCA), the group plan to defer its Full Year Results 2019-20, previously scheduled for 21^st May 2020 and will update the market soon.

Recent News
On 27^th March 2020, the Royal Mail has affirmed that it might cut back on postal services as employees seeking sick leaves for self-isolation. Moreover, stay-at-home restrictions has tumbled the volume of letters.

Impact of Covid-19: Update (as on 27^th March 2020, GBP Million)
For FY20, the group is expecting the adjusted operating profit (before IFRS 16) to be between £300 million - £340 million. Currently, it is operating withlimited financial debt and robust liquidity of £800 million in cash plus £925 million RCF (Revolving Credit Facility). During the last two weeks (before 27^th March 2020), their UPKIL business division has been significantly impacted due to the COVID-19 pandemic since marketing campaigns have been suspended, particularly in the travel sector. The volume of stamped mail is likely to be impacted for unforeseen period amid coronavirus crisis and shutdown of businesses. Their GLS business has seen decline in B2B volume, especially in markets of Italy, France and Spain. Presently, there are no financial covenants on either the €550 million bond (maturing October 2026) or the €500 million bond (maturing July 2024).

Share Price Performance
 
Daily Chart as of March 27^th, 2020, after the market closed (Source: Thomson Reuters)

Royal Mail’s shares closed trading session at GBX 133.50 on 27^th March 2020 and was down by 17.57% versus the previous day closing price. Stock's 52 weeks High is GBX 266.70 and Low is GBX 118.86.

Valuation Methodology

*Peers: FirstGroup PLC, EasyJet PLC, Go-Ahead Group PLC and Xpediator PLC
Conclusion
 
In the financial year 2020, the company’s adjusted operating profit, before IFRS 16, is expected to be in the range of £300-340 million, in line with the guidance. However, the letter business in the United Kingdom is challenging. The company stated that the letter volume (excluding elections) is likely to be in the range of 7%-9% in FY20. For the financial year 2021, the company anticipate letter volume (excluding elections) will be around 6%-8%. The letter volume is expected to decrease from FY2020 to FY2021. Moreover, the uncertain crisis of Covid-19 would further affect the guidance by dampening letter volume.

 
The company is going through a transformation phase and investing more because of the industrial relations environment to underpin the Quality of Service at this crucial time. In 2020-21, the GLS division is anticipating reduced profitability than previous guidance of adjusted operating profit margin in the range of 6%-7%. For the financial year 2024, the company’s objective is to produce annual revenues of £12 billion and provide adjusted profit margins of more than 5%. In UKPIL, the company expects to be materially loss-making in 2020-21. The Delivery Services industry outlook stays uncertain, mainly in the United Kingdom. The company operates in a demanding environment which requires continuous investment, sometimes at the cost of profitability, to stay ahead of competitors.
 
Based on the factors highlighted above, we recommend investors to keep a “Watch” on the stock at the closing price of GBX 133.50 (as on 27^th March 2020), with support from new catalysts to be evaluated at a later stage.  
 
 
*All forecasted figures and Peers information has been taken from Thomson Reuters.

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