DFS Furniture PLC (LON:DFS) has bounced back from the coronavirus lockdown but still looks undervalued, reckons broker Shore Capital.
ShoreCap, which has started its coverage of the retailer with a ‘buy’ recommendation, noted that DFS has a market leading 34% share of the furniture market and makes 22% of sales online.
“Given the exit of a number of competitors (including Harveys and a downsized Oak Furnitureland store portfolio), we believe it can leverage its scale and win further market share,” said analyst Greg Lawless in a note on Tuesday afternoon.
The group’s recent order intake book implies that revenues in the year to end-June 2021 will be significantly ahead of the preceding year, with the company recently noting that it had made £226mln of additional revenue so far.
Earnings will also be helped by a number of one-off benefits including the business rates holiday until the end of March 2021.
“Looking through the two-year earnings cycle, we believe that the shares are undervalued,” the analyst said, with a one-year forward P/E ratio of 6.4 times and an enterprise value of three times underlying profits.
“Our valuation analysis considers other higher-ticket consumer companies/retail specialists, to which DFS currently trades at a significant discount,” Lawless added, also highlight the double-digit free cash flow yield for the current year.
Shore Cap’s share price target is 330p, representing plenty of upside potential to the last closing price of 201.5p.