Bottom Line: DFS needs care

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The Independent Online
THE EXCEPTIONAL sales skills that made Graham Kirkham, chairman of DFS Furniture, into one of Britain's richest men have worked wonders for its pounds 140m placing and offer.

The sofa company, which yesterday announced its offer price at 260p a share, is being floated at no less than 21 times historic earnings, excluding a pounds 1m profit on land sales.

Since the market is looking for a 20 per cent annual earnings growth, that rating drops to about 17 times for 1994.

This is not out of line with the sector and other furniture companies such as MFI. But many in the sector have been down on their luck and have recovery-style ratings while DFS has forged ahead through the recession.

Given the impressive growth record, the offer is hardly at a bargain-basement price. Looked at another way, its pounds 271m market capitalisation values each of its 24 stores at about pounds 11m each - almost two and half times their average turnover.

It will have to work hard to justify that kind of price tag. DFS is at a transitional phase in its development.

Not only does it have to switch from a private company led by a dominating entrepreneur - who paid himself in antiques - into one run for outside shareholders too. Its planned expansion into the South could be a big test.

There is also a risk that the hoped-for revival in economic conditions will again peter out. And the feeling remains that Mr Kirkham is cashing in half his DFG shareholding when share values are close to peak levels. Treat with caution.