DFS Furniture PLC

DFS Furniture PLC (LON: DFS) is an FTSE All-Share listed Company, which is the designer, manufacturer and retailer of sofas and other furniture products. Moreover, the Company’s operations are present in the United Kingdom, Spain, the Netherlands, and Ireland.

The Company had paid an interim dividend of 3.7 pence per share attributable for H1 FY22 and a special dividend of 10.0 pence per share on 03 May 2022, while the ex-dividend date was 07 April 2022.

Investment Rationale – Buy at GBX 169.20

• Strategic Initiatives: With the implementation of New 'Pillars and Platforms' Strategy, the Company aims to achieve annual revenues of £1.4 billion by FY26.
• Share Buyback: DFS plans to return £25 million to the shareholders through a share buyback programme to be executed over the next twelve months.
• QoQ Growth in Revenue: The Company’s Q2 FY22 revenues remained around 24% ahead of the Q1 FY22 levels.
• Integration of Dwell: The successful integration of Dwell had raised efficiency and created a competitive fulfilment solution for DFS's extended homeware offer.
• Technical Indicator: From a technical standpoint, the momentum oscillator, 14-day RSI (~38.45) indicates an oversold signal, while the stock price is trading around the lower Bollinger Band.

Risk Assessments

• Tightening of Monetary Policy: The Federal Reserve announced an 0.5% increase in interest rates on 04 May 2022. Meanwhile, the Bank of England is expected to raise interest rates to their highest level in 13 years on 05 May 2022.
• Weak Global Growth Forecast: The World Bank had reduced its global growth forecast for 2022 from 4.1% to 3.2%.
• Ukraine Tension: The mounting concern over the Russian invasion of Ukraine can continue to weigh on the equity market. The soaring energy costs can squeeze household spending.

Financial Highlights (for H1 FY22 ended 26 December 2021, as of 15 March 2022)

 (Source: Company Website)

• Revenue: Revenue stood at £561.1 million in H1 FY22, reflecting a 2% decline to £572.6 million reported in H1 FY21
• Debt: The net bank debt of the Group improved from £147.8 million in H1 FY20 to £65.4 million in H1 FY22.

One Year Share Price Chart

 (Data Source: Refinitiv, Analysis by Kalkine Group)

Valuation Methodology: Price/Earnings Approach (FY22E) (Illustrative)

Conclusion

DFS leveraged its large scale, long-standing relationships, and operating experience to deliver financial growth in H1 FY22, despite the Covid-19 led disruptions. Overall, the Company remained committed to generate incremental profit in FY23, positively driven by strong order bank and robust trading momentum.

Please note, markets are trading in a highly volatile zone currently due to certain macro-economic and geopolitical tensions prevailing. Therefore, it is prudent to follow a cautious approach while investing.

Based on the decent fundamentals, business simplification, and favourable valuation conducted above, we have given a “Buy” stance on DFS Furniture PLC at the closing market price of GBX 169.20 (as of 04 May 2022), with a lower double-digit upside potential based 18.99x Price/Earnings (approx.) on FY22E Earnings Per Share (approx.).

Note 1: The reference data in this report has been partly sourced from REFINITIV.

Note 2: Investment decisions should be made depending on the investors’ appetite for upside potential, risks, holding duration, and any previous holdings. Investors can consider exiting from the stock if the Target Price mentioned as per the Valuation has been achieved and is subject to the factors discussed above.

Note 3: Target Price refers to a price level that the stock is expected to reach as per the relative valuation method and or technical analysis taking into consideration both short-term and long-term scenarios.

Note 4: ‘Kalkine reports are prepared based on the stock prices captured either from the London Stock Exchange (LSE) and or REFINITIV. Typically, both sources (LSE and or REFINITIV) may reflect stock prices with a delay which could be a lag of 15-20 minutes. There can be no assurance that future results or events will be consistent with the information provided in the report. The information is subject to change without any prior notice.’

Note 5: Dividend Yield may vary as per the stock price movement.

Technical Indicators Defined: -

Support: A level where-in the stock prices tend to find support if they are falling, and downtrend may take a pause backed by demand or buying interest.

Resistance: A level where-in the stock prices tend to find resistance when they are rising, and the uptrend may take a pause due to profit booking or selling interest.

Stop-loss: It is a level to protect further losses in case of unfavourable movement in the stock prices.

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