Today I’ll be taking a closer look at three home improvement retailers whose attractive valuations suggest significant upside potential over the longer term. So could now be the perfect time to give your portfolio a makeover and invest in these cut-price retailers?
Record performance
Furniture retailer DFS (LSE: DFS) says it expects to deliver record performance for its full financial year and pay a higher dividend, after achieving good growth in revenue in the year to the end of July. Management expects full-year results to be at the upper end of market expectations after achieving 7% revenue growth year-on-year. The company cited store expansion, development of the multi-channel offering, retail space conversion and enhancement of its product ranges as reasons for revenue growth.
The Doncaster-based furniture retailer is expected to announce a progressive final dividend in line with guidance for an overall full-year payout of 45% to 50% of profit after tax. DFS currently looks good value trading at 12 times forward earnings, supported by a solid dividend yield of 4%. I think now could be a good time to buy ahead of annual results on 6 October.
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New store format
The UK’s largest flooring retailer Carpetright (LSE: CPR) has seen its share price slide by around 60% over the past 12 months as the closure of 25 underperforming UK stores led to a decline in revenues from £469.8m to £456.8m in its last financial year. But perhaps more importantly, like-for-like sales were up by 2.8% in the UK and by 4.8% in the rest of Europe, with pre-tax profits rising to £12.8m from £6.6m a year earlier.
The Essex-based retailer plans to refurbish 100 UK stores within the next year at a cost of £10m, following the successful trial of its new store format. Strong growth should continue with an 8% rise in earnings expected this year, followed by an even better 13% for FY2018, leaving the shares on a very modest P/E rating of just 10 times earnings for fiscal 2018.
Topp that!
The UK’s biggest tiles specialist Topps Tiles (LSE: TPT) enjoyed good growth in like-for-like sales in the third quarter of its financial year as it continued to make progress with its strategy to “out-specialise the specialists.
During the 13 weeks to 2 July the company launched a new personalised digital service that enables customers to create a bespoke brochure with content specific to the rooms and designs they’re interestedTom’s The Leicester-based firm revealed that around 1,000 of these personalised brochures are being created every week.
The small-cap retailer opened six new stores during the quarter, taking its total to 348, including 15 boutiques. The fiscal year ends at the end of this month with full-year earnings expected to show a rise of 12%, leaving the shares trading at a very reasonable 12 times forward earnings.
