Broker tips: Dunelm, Persimmon

Dunelm was under the cosh on Tuesday after RBC Capital Markets downgraded the homeware retailer to ‘underperform’ from ‘sector perform’ and slashed the price target to 1,000p from 1,300p.

"We view Dunelm as a well-managed business with a strong position in the UK homewares market," it said. "However, with cost of living pressures persisting, unfavourable movements in the UK housing market and only a moderate store expansion story, we think that growth will be more difficult to come by now."

As a result, RBC said it sees greater upside potential in travel - SSP, WH Smith and Dufry - and discount retailers such as Associated British Foods and B&M European Value, "given strong topline momentum and meaningful expansion for these names".

JPMorgan Cazenove downgraded Persimmon as it reiterated its cautious stance on the UK housebuilding sector.

The bank said it was reiterating the stance in spite of the sector’s recent underperformance on inflation data and the Bank of England response, as valuations are still above October 2022 levels and it sees incremental downside risks to estimates.

"Potential softening in sales rates from here, given the uncertainty on rates, puts the ‘24E volume recovery in jeopardy while scope for affordability-led ASP declines still remain," it said.

JPM downgraded Persimmon to ‘neutral’ from ‘overweight’ and cut the price target to 1,090p from 1,600p, as said its previously expected volume recovery in 2024 could now prove vulnerable. JPM said its price target implies only 6% upside potential.

"Furthermore, with one of the largest downside to 24E consensus, we place Taylor Wimpey and Vistry Group on Negative Catalyst Watch into H1 updates," it said. Vistry is rated ‘underweight’ and Taylor Wimpey ’neutral’.

JPM said overweight-rated Berkeley Group remains its preferred quality name in the sector.