No fireworks from DFS

Graham Kirkham did not become one of Britain's wealthiest men without taking the odd risk. But now he has amassed his £200m-plus fortune he is showing worrying signs of making sure he holds on to what he has got, even if that means new shareholders in DFS, his furniture retailer, have to accept a pedestrian growth path.

Yesterday's 31 per cent growth in first-half pre-tax profits to £13.1m benefited from the absence of last year's flotation costs. Stripping those out, underlying profits grew at a more sedate 12 per cent from an 11 per cent rise in sales to £73.7m. Mr Kirkham worried about difficult trading and made no apologies for the fact that the company has not opened a new store since March 1994.

That meant capital expenditure at £1.4m was less than half last year's and ensured that the company's hoard of net cash increased from £16.4m a year ago to £28.5m by the end of January. If the cash continues to pile up, the company admits it might have to give it back to shareholders.

That sits rather uneasily with the claim that the current 29 stores can be rolled out to 100 without fear of stealing sales from existing outlets. John Gummer's clampdown on out-of-town retailing is probably making it harder to expand than DFS would like to admit.

It would be a shame if the company did slow down the roll-out of its highly successful formula, because an operating margin of 16.7 per cent represents a much better use of money than buying back shares on a mid- teens price-earnings ratio. It is also a great deal better than that achieved by DFS's peers even if the fact that profits are not growing faster than sales suggests discounts and offers to tempt still-nervous shoppers are wiping out economies of scale. On forecast profits for the year to July of £26.5m, giving earnings per share of 16.8p, and £29m next time, for 18.4p, the shares, up 22p to 273p, stand at a small premium to the rest of the sector.

That is not unreasonable given the remarkable achievement of growing a financially secure, cash-generative business worth a quarter of a billion pounds in 25 years. But if Mr Kirkham remains so cautious, shareholders should expect no fireworks.

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