Berenberg slightly raises target price on Dunelm

Analysts at Berenberg raised their target price on retailer Dunelm from 1,130.0p to 1,240.0p on Tuesday, stating the group's numbers "increasingly well underpinned".

While cognisant of well-publicised uncertainties affecting the consumer sector, Berenberg said it believes Dunelm's "very strong" second-quarter trading update, with revenue growth of 18% and building momentum as the quarter progressed, leaves FY23 expectations of £178.0m of adjusted pre-tax profits "increasingly well underpinned".

Berenberg also reckons Dunelm is on track to meet its guidance for a gross margin of roughly 50% for the year, stating that while there will be inflationary pressures in its cost base, certain one-off costs in respect of stockholding and new e-commerce and furniture facilities should drop out.

"While we increase our FY23 adjusted PBT forecast only slightly at this stage (to £182.0m, from £178.0m), we believe further upgrades are very plausible," said the analysts.

The German bank thinks Dunelm represents one of the "highest-quality retailers" in its UK coverage and also pointed to a continued market share opportunity arising from its strong omnichannel proposition, a weakening competitive environment, and an ongoing expansion into the furniture category.

"We believe that Dunelm can continue to provide additional shareholder returns, underpinning a total dividend yield of 6.5%. While not our base-case forecast, we believe a special dividend could be declared as early as H1 results on 15 February," concluded Berenberg.

Reporting by Iain Gilbert at Sharecast.com