Berenberg cuts DFS target price on risk of weak UK consumer confidence

Analysts at Berenberg cut their target price for shares of DFS Furniture due to the risk that the soft UK environment might extend into the company's 2018 fiscal year.

That followed the retailer's recent profit warning on the back of weak trading over Easter and the May bank holiday, which it linked to uncertainty around the general elections and warm weather.

Yet stock in the retailer was most closely correlated with consumer confidence and that had remained steady, Berenberg said.

Hence, Berenberg believed it was difficult to determine just how long that weakness would last.

"Management sees no reason, at this stage, to warn against consensus expectations for 2018, believing that some market weakness was already expected [...] however, the forward-looking consumer confidence survey suggests that caution is warranted," they said.

Berenberg was referring to GfK's measure of British consumer expectations, which had fallen much more sharply since the referendum than the headline measure.

Nevertheless, DFS was "well-positioned" in comparison to its peers, Berenberg said, thanks to its high sales densities, scale benefits and partial vertical integration.

That meant the company had some flexibility on the marketing spend side of things - among other areas - to protect its profits and cash flows should the adverse market conditions continue.

The broker reduced its target price for the shares from 310.0p to 245.0p but reiterated its recommendation to 'buy'.