Shop around to invest in affordable furniture

On the basis that you should invest in what you know, lately I’ve been watching other people buy furniture and accessories. This is not snooping, but a way to gauge consumer sentiment ahead of a portfolio makeover.

The fortunes of home goods retailers depend on people feeling relatively secure in their circumstances and the outlook for the housing market.

That’s why this weekend you’ll find me monitoring activity at one or more of the UK-listed players in the industry, including B&Q (part of the Kingfisher empire), B&M, Dunelm, Marks & Spencer, Next and Sainsbury’s, owner of Argos and Habitat. .

These companies are operating in what Dunelm boss Nick Wilkinson has called “a new, complex and rapidly evolving economic reality.” They must offer great design, service and value in stores and online to appeal to households with limited budgets.

This effort could fail if interest rates continue to rise and inflation persists even longer than expected. But this year I’m betting on the UK market, which many consider undervalued.

Also, the demand for furniture, lighting and the like is proving to be stronger than feared. For the moment, house prices have not fallen as sharply as predicted, and the pandemic seems to have fostered an even greater attachment to housing and its rehabilitation.

John Lewis’s travails also provide an opportunity for his rivals, though they will also have to work hard not to cede any more ground to Amazon. In the first quarter, the US giant grabbed an 8.82% share of the online home goods market, ahead of Argos with 8.67%. Dunelm was third, with 4.42 percent.

First-quarter sales at Dunelm were up 6.1 percent, and enthusiasts believe it can keep going because it offers contemporary and traditional styles to suit all budgets. Guy Anderson, manager of the investment fund Mercantile, which has a stake in the company, says: “Consumer weakness could make life more challenging for many retailers.

“But we are bullish on Dunelm’s growth ‘track’, which is driven by an enhanced omnichannel proposition.”

Richard Hunter of the platform Interactive Investor notes that Dunelm has been the subject of vague speculation about deals, one of the reasons the shares are up 16% this year. Shore Capital’s Eleonora Dani rates them a ‘hold’ as they are trading at 16x earnings, which is at the high end of the retail sector and means I’ll be waiting for some weakness before buying.

Next, trading at 13 times earnings is on my list of stocks to consider if the price drops a bit. Their collection is attractive and affordable, and a formidable website features a host of third-party brands like The White Company.

Meanwhile, Kingfisher, whose divisions include B&Q, Screwfix and French chain Castorama, said this week it had been hit by bad weather but “sales in high-value and mainstream categories were showing continued resilience.”

However, Hunter says the stock is a ‘sell’ in the opinion of a consensus of analysts, which may reflect an assessment that while the desire to revamp remains strong, the pandemic DIY craze is over.

Sainsbury’s shares, up 26 percent this year, are trading at 14 times earnings, partly boosted by improvements in Argos profitability.

The potential of this combination is one of the reasons why analysts argue that Sainsbury’s shares are worth holding on to.

I will keep my stake in Marks & Spencer after the news this week of an 11.2 percent increase in clothing and home sales. This operation, which had previously been a disaster, is “fast becoming the symbol of M&S’s new image,” says Hunter.

Based on my love of M&S fashion and furniture, I invested last November at 120p. The shares now sit at 179.5 pence. Some investors may dream of a return to 743p, its May 2007 peak.

But higher energy costs are only one obstacle to such a revival.

The return of shoppers to high streets and shopping malls is giving M&S a boost. Another beneficiary is B&M, the discount store that offers decorating trends for less.

Such is the appeal of this latter-day variety store that Simon Skinner of Orbis Investment, one of the biggest shareholders, says: ‘I defy anyone to leave a B&M without buying something for their home.

“It offers very attractive products at very attractive prices, thanks to its efficiency.

‘It makes the best use of its store ownership and sources its stock directly from Asia, rather than through middlemen.’

He sees the shares, which are up 13 percent since January and trading at 11 times earnings, a good long-term bet.

Discount supermarkets Aldi and Lidl have gained acceptance among a wealthy, middle-class clientele. As a middle class person, I bet B&M will do the same.