Berenberg slightly raises target price on Dunelm

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