Has the market been too pessimistic on sofa seller DFS Furniture (DFS)? Its share price jumped last week when the company said recent trading had shown improvement.

Investors were more excited about current conditions to worry about a 30% decline in half year pre-tax profit to £11.6m. In reality, a decline in earnings was fully expected by the market.

Stockbroker Numis now forecasts annual pre-tax profit to decline to £47.5m (2017: £50.1m), ahead of a recovery to £52.5m in 2019.

‘The shares performed steadily enough in the two years following the IPO (initial public offering) in March 2015,’ says Numis analyst Matthew Taylor. ‘The demand backdrop was relatively benign and DFS achieved solid profit growth, in line with forecasts, while broadening its business base and paying generous dividends.

‘The past year has been a much tougher ride with operating profit c.15% below the level achieved before the IPO.’

Anyone buying the shares today could get a 6%+ dividend yield, assuming earnings forecasts are correct.

However, earnings growth is unlikely to be consistent in the near-term given the ongoing fragile state of the retail market and consumer spending pressures. That suggests that the share price could also remain volatile.

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