Deutsche Bank start Dunelm at 'buy'

Deutsche Bank initiated coverage of homeware retailer Dunelm on Friday with a ‘buy’ rating and 1,313p price target, arguing that the recent de-rating is a buying opportunity.

The bank said that since its IPO in 2006, Dunelm has delivered an impressive annualised equivalent return of 18%.

It said the valuation de-rating since February offers a buying opportunity for a business with consistent delivery and compounding earnings growth.

"Dunelm is currently trading at a small discount to its five-year pre-pandemic PE average of 15.3x despite warranting a premium in our view, given greater scale, category expansion and online investment," DB said.

"Our comprehensive analysis supports: 1) Further market share gains driving sales growth despite a weak market; 2) Furniture expansion providing a significant sales tailwind; and 3) Robust cash conversion allowing ongoing cash returns to shareholders."

As a result, Deutsche forecasts around 5.5% sales and 7% earnings per share compound annual growth rate for FY23-27.