Broker tips: DFS, JD Sports
By Alexander Bueso
Date: Thursday 28 Mar 2024
(Sharecast News) - Analysts at Berenberg downgraded their recommendation for shares of DFS Furniture from 'buy' to 'hold' on anticipation that management's guidance for improved demand in mid-2024 would prove premature.
The furniture retailer's latest guidance implied a pick up in demand between the third and fourth quarters of the company's 2024 fiscal year ending in June.
Berenberg's own forecasts were calling for an improvement towards the end of calendar 2024.
Furthermore, the shares' valuation already accounted sufficiently for volume growth in financial year 2025.
However, DFS was said to be meeting its cost efficiency targets "with merit".
"Given the near-term uncertainty, we view the current valuation of c11x 12-month forward EV/EBIT as challenging.
"Dunelm continues to be our preferred exposure to an improvement in UK retail demand given its materially lower average product value and our perception of conservatism in near and medium term company and consensus targets."
Shore Capital has reiterated its 'buy' rating for JD Sports after a reassuring trading update from the sportswear and footwear retailer, which has given the stock a boost as it recovers after a profit warning at the start of the year.
JD Sports issued a statement on Wednesday covering trading for the year to 3 February and gave markets its first guidance for the current year, targeting £900-980m in pre-tax profit, compared with the £915-935m guided range for the year just gone.
This was the first update since the first week of 2024 when it delivered a profit warning on the back of challenging conditions and higher promotional activity in the second half, causing shares to drop by a quarter.
"In all, after the disappointment of the 4 January warning it makes for grounded reading, no further weakening in the FY24 out-turn and, with the benefit of deeper appraisal, a firmer basis for FY25," the broker said.
"Missteps have understandably hit the stock rating, making for a material discount to global peers, and that's the upside potential here is guidance is grounded and delivered. Hence, we have a sense of relief and reiterate our 'buy' stance on JD stock."
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