DFS Furniture PLC

DFS Furniture PLC (LON: DFS) is an FTSE All-Share listed retailer of furniture in the United Kingdom.

Investment Rationale for Valuation – Buy at GBX 204.00

• Larger Business Scale: The company has established a new scale of business in H1FY22 that is 15% larger than pre-pandemic.
• Revenue Performance: The Group reported revenue from continuing operations at £561.1 million in H1FY22, reflecting an increase of 17.4% on H1FY20 with acceleration in delivery rate across Q2 and into Q3.
• Stable Gross Profit: The company has reported stable performance in underlying cash gross profit per transaction in H1FY22, as finished goods cost inflation has been offset or passed through.
• Buyback of Shares: The Group has planned for a share buyback of up to £25 million, which is expected to be executed over the next twelve months as reported on 15 March 2022.
• Technical Indicator: The price of the stock is hovering near lower Bollinger band, with a low 14-day RSI level of ~40.10.

Key Risks

• Macro Risk: The company is prone to the risk of demand for its products given geopolitical instabilities and rise in raw material prices.
• Supply Chain Risk: The Group has been impacted by the disruption in supply chain due to COVID pandemic and the uncertainty of disruption still prevails.

Financial Highlights (for H1FY22 ended 26 December 2021, as of 15 March 2022)

(Source: Company Website)

• Revenue: Revenue stood at £561.1 million in H1FY22, reflecting 2% decline to £572.6 million reported in H1FY21
• Debt: The net bank debt of the Group improved from £147.8 million in H1FY20 to £65.4 million in H1FY22.

One Year Share Price Chart

(Source: REFINITIV; Analysis done by Kalkine Group)

Valuation Methodology: Price/Earnings Approach (FY23E)

Conclusion

The management has opined that it has delivered decent performance when compared to the pre-pandemic period along with a gain in market share. Further, it expects profits in FY22 and FY23 to remain unchanged.

The stock made a 52-week high and low of GBX 318.50 and GBX 171.37, respectively.

Based on the stable gross profit, gain in market share and support from the valuation as done using the above method, we have given a “Buy” recommendation on DFS Furniture PLC at the closing market price of GBX 204.00 (as of 04 April 2022) with lower double-digit upside potential based on 7.73x Price/NTM Earnings (approx.) on FY23E earnings per share (approx.).

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.

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

Note 2: Investment decision should be made depending on the investors’ appetite on 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 subject to the factors discussed above.

Note 3: Dividend Yield may vary as per the stock price movement.

Note 4: Target Price refers to a price level which 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 5: ‘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.’

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 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 unfavorable movement in the stock prices.

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