DFS Furniture Plc

DFS Furniture Plc (LON: DFS) is the FTSE All-Share listed Company, which is the designer, manufacturer and retailer of sofas and other furniture products.

The Company will release post-closing trading update for FY2021 in July 2021.

Investment Highlights - DFS Furniture Plc – Hold at GBX 250.50

• Despite the impact of the covid-19 pandemic on supply-chain, the Company has delivered strong operational performance in H1 FY2021.
• In the last three months, the Company delivered a decent return of ~8.91% and delivered higher returns compared to the benchmark Index (FTSE-all Share Index).
• As per valuation metrics, Price/Cash Flow multiple of the DFS Furniture Plc is currently lower as compared to the corresponding multiple of the Speciality Retailers industry, reflecting undervalued valuations.
• From the technical standpoint, shares were trading well above the support level of 20-day simple moving average prices (GBX 242.00), which reflects an uptrend in the stock and can move up further.

Key Risks

• The Company’s Capital expenditure may increase due to changing consumer patterns.
• The Company is exposed to cybersecurity risk regarding data breaching.

Financial Highlights – H1 FY2021 (27 December 2020) (released on 10 March 2021)

(Source: Interim Report, Company Website)

• In the first half of the financial year 2021, driven by higher revenue from digital business and strong order intake, the revenue increased by 17.3%.
• Driven by strong revenue growth for the period, the profitability for the period increased. The Company reported profit before tax of £72.1 million for the period.
• The Company made significant reduction in net debt for the period to £38.2 million (H1 FY2020: £157.7 million).

Six Months Share Price Chart

(Source: Refinitiv, Thomson Reuters)

Valuation Methodology: Price/Cash Flow Approach (NTM) (Illustrative)

Conclusion

The Company has shown an improvement in financial performance in the first half of the financial year 2021. Both the revenue and profitability for the period improved. DFS Furniture has delivered resilient performance despite the closures of showroom and disruption to supply chains. The investment made in digital channel generated strong revenue growth. The Company expects full-year profit before tax to be around £105 million along with higher order bank. DFS expects performance to improve further as restrictions related to covid-19 eased. The stock made a 52-week low and high of GBX 105.00 and GBX 276.30, respectively.

Considering the uncertainties and market dynamics, we are currently maintaining the “Hold” recommendation for DFS Furniture Plc at the closing price of GBX 250.50 (as on 25 March 2021) and will recommend fresh buying at the right time.

Card Factory Plc

Card Factory Plc (LON: CARD) is a FTSE All-Share listed retailing Company, which deals in gift dressings, gifts and greeting cards.

The Company will release FY2021 results on 20 April 2021.

Investment Highlights – Card Factory Plc – Hold at GBX 67.00

• Despite the lower sales during the period, online business continues to improve and generate higher sales.
• In the last nine months, the Company delivered a substantial return of ~34.54% and delivered higher returns compared to the benchmark Index (FTSE-all Share Index).
• As per valuation metrics, EV/Sales, EV/EBITDA and Price/Book Value multiples of the Card Factory Plc are currently lower as compared to the corresponding multiples of the Speciality Retailers industry, reflecting undervalued valuations.
• From the technical standpoint, shares were trading above the support level of 20-day simple moving average prices (GBX 66.20), which reflects an uptrend in the stock and can move up further.

Key Risks

• The recent upsurge in Covid-19 cases could result in the shutdown of the stores and might hamper the supply chain of the Company.
• The Company is facing a significant financial impact due to stores closure with coronavirus led restriction.

Recent News

On 26 February 2021, Card Factory released an update on liquidity. The Company is into active discussions with banking syndicate and have provided waivers for covenant breaches till 31 March 2021.

Trading Update for 11 Months period (31 December 2020) (released on 14 January 2021)

• During the eleven months period, driven by lower store sales, the sales declined significantly to £281.4 million.
• The sales from online business continue to improve, with growth in sales to trading partners.
• The recovery post first lockdown stood ahead of management’s expectations.
• The Company expects existing bank facilities would be sufficient to meet the current requirements if current lockdown does not extend beyond 30 April 2021.

Six Months Share Price Chart

(Source: Refinitiv, Thomson Reuters)

Valuation Methodology: EV/Sales Approach (NTM) (Illustrative)

Conclusion

The Company witnessed a significant decline in revenue due to the impact of the covid-19 pandemic. As all the stores would be closed by the end of January 2021, the Company expects revenue for full-year to be around £284 million and LBT (loss before tax) of approximately £10 million. CARD will be able to fully open all stores once the lockdown is eased. At present, the Company is in no position to provide any guidance for the financial year 2022. The stock made a 52-week low and high of GBX 24.35 and GBX 79.70, respectively.

Considering the uncertainties and market dynamics, we are currently maintaining the “Hold” recommendation for Card Factory Plc at the closing price of GBX 67.00 (as on 25 March 2021) and will recommend fresh buying at the right time.

*Dividend Yield may vary as per the stock price movement.

*All forecasted figures and Peer information have been taken from Refinitiv, Thomson Reuters.

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