DFS maintains unbroken record with pounds 26m profit

THE INVESTMENT COLUMN

One of the biggest problems of DFS Furniture is finding anyone who has not fallen under the spell of Graham Kirkham, its charming chairman. If, like him, you have taken pounds 180m out of your company in two years and still hold a stake worth more than pounds 100m you can probably afford to be extremely nice, but his attention to putting people at their ease is crucial to the success of the company. In a commodity business like selling threepiece suites, making the customer feel king is a crucial differentiation.

The success of DFS's approach was confirmed yesterday when the company announced its 26th successive year of growth, increased its full year payout by 15 per cent and rewarded shareholders with a special dividend worth 10p a share.

Pre-tax profits jumped 23 per cent in the 12 months to July from pounds 22.73m to pounds 26.23m, although that was slightly flattered by the inclusion last year of the costs of coming to the market. Stripping that out, underlying profits rose 15.4 per cent, with earnings per share 15.1 per cent ahead at 16.57p. The dividend is increased from 7.2p to 8.3p.

Cynics might question how a company can do so well selling furniture in the face of fragile consumer spending, still undermined by the moribund housing market. But it is hard to argue with underlying sales growth of 8 per cent and such strong cash flow that even after adding new outlets at a rate of six a year there is money left over to hand back to shareholders.

DFS reckons that, with a market share of only 8 per cent, it can continue to grow at the current rate for the next decade at least. From its current base of 32 shops, it is aiming for a chain at least 100 strong. If it can translate its success in the Midlands and North to the South and South West of England, where it presently has no exposure at all, DFS will become a dominant force in household retailing.

Brokers are pencilling in profits for the year to next July of pounds 30m, implying earnings per share of 19p and a prospective price/earnings ratio of 18, with the shares down 8p at 345p yesterday. In the short run that appears pretty demanding, but if the growth projections are half achievable this is a share to tuck away and forget about.

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