Pullback in Dunelm shares provides buying opportunity, says RBC Capital

Homeware retailer Dunelm rallied on Monday after RBC Capital Markets upgraded its stance on the shares to ‘outperform’ from ‘sector perform’, saying the recent pullback provides a buying opportunity.

RBC noted the share price has come off around 20% in the past month on store closures and rotation out of so-called ‘Covid beneficiaries’.

"We think it provides a more attractive entry point to buy a growing, well-managed retailer with a range advantage and which is well placed to make further enhanced cash returns to shareholders," it said.

RBC, which has a 1,450 price target on the stock, said Dunelm has a strong balance sheet, with a net cash position of £156mn as at 31 October and access to £175mn of bank financing facilities.

"As such, assuming a more normalised trading environment in 2021, we see potential for it to pay higher dividends, given its current net cash position and net debt/EBITDA target range of 0.2-0.6x," it said.

It also said the fact that Dunelm operates at the value end of the market should serve it well given likely pressures on employment and consumer incomes.

At 0950 GMT, the shares were up 6.5% at 1,260.48p.