Berenberg lowers target price on DFS Furniture

Analysts at Berenberg lowered their target price on soft furnishings retailer DFS Furniture from 280.0p to 195.0p on Thursday but said the group still had "bouncebackability".

Berenberg stated that after a "difficult" summer period, DFS had achieved a recovery in momentum in more recent months and while near-term trends may well remain volatile, it believes it to be perfectly possible that DFS trends back towards historical levels of profitability in the medium-term, which would leave its rebased estimates "far too conservative".

The German bank noted that the nature of DFS' business meant that ebbs and flows in trading were "inevitable", and that was said to be "particularly true" of 2023 to-date.

"After a very difficult start to FY23 over the summer months, momentum has improved in more recent times, such that Q2 (calendar Q4) order intake was 16.3% ahead of pre-Covid-19 pandemic levels, while the company also commented on continued strength in the early stages of H2," said Berenberg, which reiterated its 'buy' rating on the stock.

Berenberg stated that further volatility in trading trends could be ruled out but noted that the company had reiterated its previously established mid-case scenario for 2023 outturn - being pre-tax profits of £36.m.

"On our revised estimates, DFS trades on 13x/10x CY23/24 EPS and a 6%/11% FCFE yield respectively. However, were the company to recover to its previous base of £85m PBT, this would imply a P/E of 6x."

Reporting by Iain Gilbert at Sharecast.com