DFS Furniture PLC (LON: DFS)

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.

On 15 March 2022, the Company will release H1 FY22 financial results for the six months ended 26 December 2021.

Recent trend of dividend payments

DFS had paid a final dividend of 7.50 pence per share attributable for FY21 on 23 December 2021, while the ex-dividend date was 25 November 2021. In comparison, the Company had not paid any dividend during FY20 to support the Group's financial resilience.

Growth Prospects

• Significant Investments: DFS shall continue to invest in strengthening digital platforms, showroom, deliver network, and manufacturing capacity to remain well-positioned to capitalise on the increased demand.
• Integration of Dwell: The successful integration of Dwell had raised efficiency and created a competitive fulfilment solution for DFS's extended homeware offer.
• Strong Online Presence: The changed consumer habits prompted DFS to put increased investments towards the development of online business. Hence, online sales surged by around 184.30% during FY21.

Key Risks 

• Record UK Inflation: The annual rate of UK consumer price inflation reached 5.5% in January 2022, the highest since March 1992. Thus, it can adversely impact the London equities.
• Supply Chain Disruption: The recent shortage of lorry drivers in the UK had created supply chain disruptions and escalated the freight cost.
• Wrong Strategic Choices: The failure of partner relationships could adversely impact the business in the near term.

Key Fundamental and Shareholders Statistics of DFS Furniture PLC.

Liontrust Investment Partners LLP is the most significant shareholder as it holds nearly 24.29 million shares as of 31 December 2021.     

H1 FY22 Trading Update (for the 26-week period to 26 December 2021, as on 12 January 2022)

• Strong Orders: The first half witnessed a robust performance, and even the post-Christmas period started well. The gross sales jumped 10% year-on-year in H1 FY22. The order bank was around £200 million higher than pre-pandemic levels on a revenue basis.
• Robust Financial Position: The closing net debt is expected to be around £65-£70 million at the end of H1 FY22.
  

FY21 Financial & Operational Highlights (for 52 weeks ended 27 June 2021, as of 23 September 2021)

(Source: Company Filings)

• Strong Top-Line Business: The Group’s revenue grew by around 47.4% from £724.5 million during FY20 to £1,067.70 million for FY21.
• Turnaround into Profitability: DFS had witnessed a positive turnaround in profitability and reported profit before tax of around £99.20 million for FY21.
• Strengthening of Balance Sheet: DFS had shown a significant reduction of almost 88.8% in net bank debt from £157.7 million at previous financial year-end to £19.0 million at the end of FY21.

 Financial Ratios (FY21)

Share Price Performance Analysis

 (Source: Refinitiv, Research done by Kalkine Group)

On 21 February 2022, at 08:06 AM GMT, DFS’s shares were trading at GBX 219.00, down by around 3.95% against the previous day closing price. Stock 52-week High and Low were GBX 318.50 and GBX 209.50, respectively.

On a daily chart, the stock price is sustaining between the lower Bollinger band and middle Bollinger band. Hence, there could be an uptick in the stock price in the near term. Also, the 14-RSI at around 34.74 indicates that the stock is trading near the oversold territory, which suggest trend reversal in the near term.

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

Business Outlook

The strong order intake and solid financial position underpins the positive trading outlook. DFS leveraged its large scale, long-standing relationships, and operating experience to deliver financial growth in H1 FY22, despite the Covid-19 led disruptions. The pent-up demand for furniture with remote working, market share gains, high closing order book, incremental efficiency savings, and integration of Dwell into the DFS brand operating structure holds potential for generating incremental shareholders’ value. Overall, the Company remained committed to generate incremental profit in FY23, positively driven by strong order bank and robust trading momentum.

Considering the solid fundamentals, resumption of dividend payments, reduction in net debt, positive industry dynamics, and support from the valuation as done using the above method, we have given a “BUY” recommendation on DFS Furniture PLC at the current price of GBX 219.00 (as of 21 February 2022 at 08:06 AM GMT), with lower-double digit upside potential based on 9.59x Price/NTM 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 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. 

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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