On Friday, Berenberg upgraded DFS Furniture PLC (LON:DFSD) (DFS:LN), a leading UK upholstery retailer, from Hold to Buy, setting a new price target of £1.85, up from the previous £1.20. The firm attributes the positive outlook to DFS's competitive advantages, including its extensive showroom network and the appeal of its multi-year interest-free credit options. These elements are seen as key to the company's pricing power and ability to defend its market share.
The analyst from Berenberg believes that the furniture market could witness a medium-term recovery, which would likely benefit DFS due to its operational gearing. This perspective is bolstered by recent sales growth in the furniture sector reported by Next (LON:NXT) for the first time since the challenging post-pandemic period, specifically in their third quarter ending in October.
Furthermore, potential reductions in base rates could boost consumer confidence and decrease the funding cost of DFS's interest-free credit offerings. Berenberg notes that a 1 percentage point drop in the Sterling Overnight Index Average (SONIA) could technically increase DFS's adjusted profit before tax by £7 million to £8 million.
Berenberg's updated recommendation comes with an optimistic view of DFS's future performance in the market. The firm's analysis suggests that the combination of market conditions and DFS's strategic offerings positions it well for growth. The coverage of DFS has now been transferred to Anne Critchlow at Berenberg.
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