Panmure Liberum starts coverage of DFS at 'buy' with 300p price target
Panmure Liberum initiated coverage of furniture retailer on Thursday with a 'buy' rating and 300p price target.
It said DFS's business can be characterised as one of leading market share, entrenched economic moats, significant barriers to entry and high brand awareness.
"The group has gone through a transformation the last three years and is now at an inflection on monetising these attributes," it said.
"The shares do not reflect the changes in the model, the superior earnings profile on offer and future value creation."
Panmure said DFS's 36% market share provides profound network effects, adding that the company's name is searched 1.8x more online than the term 'sofa'.
It pointed out that DFS spends £120m a year on interest-free credit, making it very hard for any other company to attack this share.
"Add to this exclusive brand partnerships elevating the offer and the fact that NPS is more than 92% due to its vertically integrated delivery model. We are not surprised it is 3x the size of its nearest competitor, taking share."
Panmure said that against the lacklustre macro backdrop, DFS's order book is double-digit and revenues are back in growth.
"Consumer confidence is the main driver of big-ticket items and with consumer balance sheets in a good place, lower interest rates could be the unlocking mechanism here," it said.
"DFS has enhanced its business model and any recovery in revenues should drop through at 20% to 25%."
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