Shares in Kingfisher PLC, Dunelm Group PLC (LSE:DNLM) and DFS Furniture PLC (LSE:DFS) fell on Friday morning after being downgraded by UBS over the gloomy economic backdrop for the coming 12 months.
Kingfisher shares dropped 2.2% to 250.30p as the Swiss bank cut its rating to 'sell' from 'hold' and cut its price target for Kingfisher to 203p from 338p.
UBS also slapped a 'sell' rating on DFS and slashed its price target to 100p from 241p. The shares fell 3.8% to 135.8p.
Dunelm was downgraded to 'neutral' from 'buy' and the target chopped to 850p from 1,761p, leading to its shares declining 2.4% to 821p.
For Kingfisher, the broker said the downgrade reflected weak industry data and comments from peer groups in the sector, such as Wickes.
UBS said it expects competition to intensify in an already tough market and it sees Screwfix underperforming Toolstation in the medium term adding its analysis suggests a 71% downside to base case EPS.
“Whilst we like Kingfisher's turnaround potential, against the current backdrop, we think the downside potential will be a drag on valuation, given no catalysts for a re-rating in the next 12 months” UBS concluded.
UBS cut pre-tax profit forecasts for 2022 to £719mln from £760mln and for 2023 to £516mln from £783mln.
For DFS, PBT estimates were cut 33-60% out to 2024 as although it has a "solid" expansion strategy, including its Sofology digital arm and entry into Homewares, caution is driven by various macro factors.
The first is the weakness in housing transactions (which drives around a fifth of furniture transactions) estimated to be down 5% in 2023, combined with falling consumer confidence (recently highlighted in ScS' trading update).
Second and third are forecasts that the upholstery industry will decline by 0.3% in 2022 and 1.6% 2023 "given no structural drivers" after the unprecedented growth during the pandemic.
For Dunelm UBS said it likes the growth story but is cautious in the near term reflecting weakening industry data.
The broker believes that Dunelm can continue to gain share in the medium term and grow its online business but are cautious in the near term as industry data has been weak for Home Accessories and House Textiles with consumer credit card transaction volumes falling below pre-pandemic levels and value spend tracking lower year on year for Furniture.
Analysis of Dunelm's categories suggests that pricing has held up during recessionary periods, while retail sales declined ahead of other categories but UBS said recent data points suggest that data has started to turn negative, with Barclaycard data showing that furniture store volumes have declined to below 2019 levels.
UBS also cut its revenue forecasts for Dunelm by 10-17% for 2023 and 2024.