FTSE back in the red, trading recovery for DFS Furniture and working capital issues weigh on Diploma

“It’s a miserable day for the UK stock market with the FTSE 100 falling 0.8% to 6,942 in early trading, dragged down by weakness in oil, gas and mining stocks. Investors will be hoping that tomorrow’s session is better so the short trading week ends on a positive note,” says AJ Bell Investment Director Russ Mould.

DFS Furniture

“It is fair to say that expectations were very low for DFS Furniture’s half year results given how many other retailers have struggled.

“Therefore comment from chief executive Ian Filby that the business has seen stronger trading in February and March is a pleasant surprise to the market, hence why the share price has shot up.

“Taking a step back, half year earnings illustrate just how much pain DFS has suffered over the six months to 27 January 2018. Pre-tax profit has more than halved to £7m and there is no growth in the dividend for shareholders.

“However, DFS seems confident it can get through the worst of the retail gloom. Rather than go into crisis mode and stop spending money on everything possible, it is business as usual in terms of developing a new store format, driving greater online sales and undertaking marketing campaigns.”

Diploma

“A trading update from FTSE 250 industrial components-to-healthcare products distributor Diploma contains good and bad news.

“Revenue is growing, market conditions are good and the business has a strong balance sheet with £16m net cash.

“On the other hand, its large overseas operations have to contend with unfavourable foreign exchange rates.

“Of particular importance is the fact that working capital has increased ‘substantially’ to support a stronger trading environment. It effectively means Diploma has a lot of capital tied up in stock in order to fulfil anticipated orders.

“The market prefers companies which efficiently convert assets into cash and not have large working capital requirements, which perhaps explains why Diploma’s shares have been marked down today.”

These articles are for information purposes only and are not a personal recommendation or advice.