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Dunelm soars toward seven-year high after broker upgrade

Peel Hunt also upgraded its profit forecast by 5% after the homewares group said it expected higher profits and margins from its new website

Dunelm Group plc -

Dunelm Group plc (LON:DNLM) shares surged to their highest level since summer 2013 after a surprise trading update that led to Peel Hunt lifting its profits forecasts and upgrading the stock to a ‘buy’ recommendation.

The broker, which previously had Dunelm at ‘add’, upgraded the stock but kept its 1,000p price target after the homewares group's bullish statement that plumped up full-year profit expectations for the fifth time this year after a successful new website launch ahead of the peak Christmas trading season.

The FTSE 250 furniture, cushions and curtains retailer said customers have “responded well” to the new website, seeing no adverse impact on sales during the transition period, instead giving a boost to profit margins.

Peel Hunt was impressed by the slick transition, noting moving web platforms can be “as disruptive as a warehouse move...and taking several months to recover”.

“The website is what we can only describe as lightning quick, with better search functionality, an improved customer experience, click-and-collect capability and provides the basis for significant future development and innovation.”

Peel Hunt’s analysts also lifted their full-year pre-tax profit forecasts to £139mln in response to the improved outlook, with further online growth in years ahead.

“The strong momentum online and successful transition to the new web platform provides the comfort to upgrade our online growth assumptions to 32% for the full year (previously 20%), which means that overall LFL sales growth for H2 will be slightly positive despite the c16% prior year comparative, indicating the strength of momentum within the business.”

The analysts concluded that with the new website, Dunelm is “well placed to materially step-up its multi-channel capabilities, further driving spend per customer and new customer growth,” but advised some restraint ahead of next week’s general election, which they said might bring “further upside in the event of a more stable political and consumer backdrop”.

Dunelm was cautious on this front too, saying the profit guidance was upped on the assumption that there would be “no significant change in consumer demand as a result of the outcome of the general election”.

Shares were up 19% at 987.9p late on Thursday morning, nearing their all-time highs from July 2013.

Quick facts: Dunelm Group plc

Price: 1163 GBX

LSE:DNLM
Market: LSE
Market Cap: £2.35 billion
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