Broker tips: AJ Bell, Dunelm

Analysts at Berenberg hiked their target price on financial services firm AJ Bell from 370.0p to 410.0p on Friday after the group's Q3 earnings on 18 July sent shares up roughly 6% on the day.

AJ Bell's Q3 earnings showed assets under administration grew, driven by both positive net flows and favourable market movements, as both the direct-to-consumer and advised channels had a solid quarter, in Berenberg's view, with customer numbers continuing to rise for both during the quarter.

Management also highlighted that the business enters Q4 with "strong momentum".

"While AJ Bell should continue to take market share and drive long-term earnings growth, we maintain our 'hold' rating given the current regulatory uncertainty about interest income earned by investment platforms on client balances," said Berenberg.

"We update our forecasts, leading to a circa 9-10% increase in FY24 and FY25 EPS. This is driven by an increase in AuA, given strong flows in Q3 and an increase in flow expectations in subsequent quarters, as well as factoring in margin and cost guidance from the H1 results."

Over at Canaccord Genuity, analysts raised their target price on home furnishings retailer Dunelm from 1,250.0p to 1,325.0p on Friday, stating the firm's "strong finish" to FY24 had driven a "small" earnings beat.

Canaccord Genuity said Dunelm's FY24 trading update showed that it had delivered "a strong final quarter" with sales rising by 5.0%, up from Q3's 2.6% growth. Dunelm's Q4 performance drove an increase in overall group FY24 sales of 4.1% to £1.7bn across the year ended 29 June, approximately 55% higher than FY19 pre-pandemic levels.

"Importantly, the growth has been largely volume-driven, and management is confident the group outperformed the wider market and delivered further share gains in what remains a largely fragmented UK homewares market," said Canaccord. "Dunelm has ~8% share of the UK homewares and furniture market worth c.£24bn. A stronger-than-expected FY24E gross margin outcome has helped to drive a small beat to both our own and consensus pre-tax profit expectations."

Prior to the update, consensus pre-tax profit estimates stood at £200.0m for FY2 but the Canadian bank said it has now "duly upgraded" its forecast by 3% to £202.0m, with a 2% upgrade to FY25/26 forecasts.

"We continue to believe that Dunelm offers an attractive growth opportunity with significant share gain opportunities in under-penetrated categories coupled with further UK store expansion potential," concluded Canaccord.