Shares in Dunelm Group PLC (LSE:DNLM) were 3% higher after an upgrade by RBC Capital Markets, which now rates the homewares retailer as "outperform".
The investment bank cites Dunelm’s ability to grow sales and gain market share despite a tough UK retail environment in as a key reason for the change.
RBC highlights the group's strong cash generation, which has allowed it to return more than £700 million to shareholders via special dividends since its stock market listing in 2006.
Its analysts expect this trend to continue, forecasting a special dividend of 25p per share in February’s half-year results.
The retailer’s valuation also appears attractive. RBC notes that Dunelm is currently trading at 12 times its estimated 2025 earnings, which is at the lower end of its historical range.
The firm has a price target of 1,175p per share, implying a potential 22% upside from its current level.
Dunelm’s prospects are further supported by improving UK housing market trends, which RBC believes will boost demand for home-related products.
While cost pressures remain, particularly from wage increases and currency fluctuations, the bank expects Dunelm’s strong supplier relationships and pricing strategy to help mitigate these challenges.
In early trading, the stock was up 27.5p at 989p.