Berenberg lowers target price on Dunelm, says group's 'resilience' underappreciated

Analysts at Berenberg lowered their target price on retailer Dunelm from 1,200.0p to 1,130.0p on Tuesday but said the group's "resilience" remained underappreciated.

Berenberg said the contrast between Dunelm's fourth-quarter trading update on 21 July and Made.com's from two days earlier was "stark", with Dunelm's full-year pre-tax profits now expected to surpass consensus estimates amid "solid" trading.

The German bank stated investors were now heavily focused on 2023 but said Dunelm's flexible business model was underappreciated by the market.

"Growth should be sheltered by market share gains, with the company's well invested omnichannel proposition providing a competitive advantage over peers," said the analysts, who also reiterated their 'buy' rating on the stock.

Berenberg also highlighted that Dunelm's strong return-on-invested-capital profile and cash generative business should support additional capital returns.

"Dunelm trades on 11.7x FY23E P/E and 10.6x EV/EBIT, despite a very strong balance sheet position, a c7% dividend yield, and c30% lease-adjusted ROIC. We value Dunelm on 16x P/E, broadly in line with its 10-year pre-Covid-19 average multiple, which should be underpinned by its strong ROIC and de-levered balance sheet," concluded Berenberg.

Reporting by Iain Gilbert at Sharecast.com