Barclays starts Dunelm at ‘overweight’

Barclays initiated coverage of Dunelm shares at ‘overweight’ with a 1,425p price target on Wednesday as it highlighted its resilience and strong balance sheet.

The bank said that while there may be risk to the homewares/furniture markets in a recession, its UK Spend Trends 2.0 indicates industry growth rates are currently strong.

"Combined with market share gains for Dunelm, we believe the company will be resilient and deliver attractive growth (14% profit before tax growth in FY22)," it said.

Barclays noted that Dunelm’s recent trading statement revealed 30% of sales were derived from online since stores re-opened, and 12% of sales derived from click & collect.

"We see clear potential for combined digital channels to be more than 50% of revenue, which could drive earnings upside and valuation support," it said.

"Ongoing improvements to online, combined with strong product (often non-branded) from a committed group of suppliers, 50% gross margins, and a low cost store estate in circa 170 locations (click & collect, potential to deliver from store), mean the company has sources of competitive advantage."

Barclays said the opportunities for growth are clear and while execution is critical, its discussions with management "indicate a company with the capabilities and desire to evolve and succeed".