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Investing.com -- UBS has raised its rating on DFS Furniture to Buy from Neutral, arguing that a turnaround is firmly underway and the earnings cycle is turning positive.
The bank lifted its price target to 210p from 130p, seeing “material upside as the earnings cycle turns.”
The company’s order intake rose 10% in fiscal 2025, providing strong sales visibility for the first half of 2026, given a two-month lag between orders and deliveries.
UBS forecasts revenue to grow 5% year-on-year in fiscal 2026, underpinned by stabilising demand and market share gains. The bank noted that stabilisation is consistent with improving U.K. macro indicators such as household income growth, mortgage approvals, and consumer confidence.
While it does not expect a macro tailwind, UBS argued that stabilisation alone should allow DFS to outperform.
Management has already delivered £53 million in cost savings a year ahead of schedule, which, combined with higher volumes, is expected to drive operating leverage. UBS projects adjusted profit before tax (PBT) to grow 45% in fiscal 2026.
Analyst Hai Huynh said DFS is now at a “growth inflection point” with a de-risked path for profit expansion.
He forecasts a 40% adjusted PBT compound annual growth rate between 2025 and 2028, supported by efficiency measures, improving consumer confidence, and easing cost headwinds.
“With indicators of market stabilisation ahead and strong self-help delivery proven, DFS’ valuation now looks undemanding,” Huynh wrote.
The analyst highlighted DFS’s strengthened position in the U.K. upholstery market, where it now commands a 39% share—over 400 basis points higher than pre-pandemic levels.
Gains have come largely at the expense of independents and peers such as ScS, while the group’s Sofology brand has also contributed.
Free cash flow has turned positive, with £59 million generated in fiscal 2025, and leverage is expected to fall to 0.7x by the end of fiscal 2026. UBS forecasts a dividend resumption in the second half of fiscal 2026, to be paid in 2027.
Huynh notes the current 4.8x FY26 EV/EBITDA multiple represents a roughly 20% discount to peers and a 25% discount to its historical average, offering an attractive entry point as the turnaround story plays out.