Broker tips: DFS, MJ Gleeson, B&M

(Sharecast News) - Panmure Liberum initiated coverage of furniture retailer DFS on Thursday with a 'buy' rating and 300.0p price target. It said DFS's business can be characterised as one of leading market share, entrenched economic moats, significant barriers to entry and high brand awareness.

"The group has gone through a transformation the last three years and is now at an inflection on monetising these attributes," it said. "The shares do not reflect the changes in the model, the superior earnings profile on offer and future value creation."

Panmure said DFS's 36% market share provides profound network effects, adding that the company's name was searched 1.8x more online than the term 'sofa'.

It pointed out that DFS spends £120.0m a year on interest-free credit, making it very hard for any other company to attack this share, and also pointed out that against the lacklustre macro backdrop, the company's order book was still double-digits and revenues were back in growth.

"Consumer confidence is the main driver of big-ticket items and with consumer balance sheets in a good place, lower interest rates could be the unlocking mechanism here," it said. "DFS has enhanced its business model and any recovery in revenues should drop through at 20% to 25%."

Analysts at Berenberg lowered their target price on housebuilder MJ Gleeson from 642.0p to 500.0p on Thursday, stating the company was currently experiencing some "tough times".

Following MJ Gleeson's unscheduled trading update on 3 June, Berenberg cut its earnings per share forecasts for MJ Gleeson by 20% on average over 2025-27. In its trading update, MJ Gleeson indicated that its FY25 results would now come in below current market expectations, citing a combination of two factors.

Firstly, MJ Gleeson said that the margin performance in its Gleeson Homes division was lower than it had previously expected, as it continued to use selling incentives to drive demand, putting pressure on margins in the process.

Secondly, MJ Gleeson was expecting FY25 profits to benefit from the sale of a land holding, but the transaction did not proceed as it had initially expected.

"We make no change to our revenue forecasts, which reflects no changes to our volume or average selling price assumptions, with all earnings downgrades driven by the reduced margins," said the German bank, which maintained its 'buy' rating on the stock.

"We cut our EBIT, PBT and EPS forecasts by 18%, 20% and 20% respectively over 2025-27, on average. Our new PBT forecast for FY25 of GBP22m implies a decline of 13% yoy, before we expect growth of 13% in FY26. Our FY25 EBIT margin forecast now stands at 6.7%, down from c15% in 2021-22, illustrating the challenges the group has faced on this front."

JPMorgan Cazenove cut its price target on B&M European Value Retail on Thursday to 281.0p from 299.0p as it reiterated its 'underweight' rating on the shares.

"Following weaker-than-expected FY25 earnings, we revise our estimates HSD-DD% below consensus with a revised Sep-26 price target of 281p," it said. "We continue to see B&M on the verge of a wider strategic/margin reset than both management and market expectations acknowledge/reflect at this juncture."

The bank said it continues to prefer Sainsbury and Tesco, both of which were rated 'overweight', as more visible investment cases in the UK space.