This report is an updated version of the report published on 31 May 2022 at 08:09 AM GMT+1

Dunelm Group PLC

Dunelm Group PLC (LON: DNLM) is an FTSE 250 index-listed homewares retailer.

Investment Rationale for Valuation – Buy at GBX 886.50

• Q3FY22 Update: The Group has posted robust sales growth of 69% to £399 million in Q3FY22, compared to the prior corresponding period. Sales were driven by continued growth in-store and digital sales.
• Gain in Market Share: The company reported decent business performance and has clocked gains in market share in its homewares and furniture segments in Q3FY22.
• Launch of New Product: DNLM has launched a new product collection in February 2022, along with collaboration with the Natural History Museum.
• Dividend: The management has declared an interim dividend of 14.0 pence per share in H1FY22, compared to 12.0 pence per share in H1FY21. It has also announced a special dividend of 37.0 pence in H1FY22.
• Technical Indicator: The price of the stock is trading close to the middle Bollinger band with 14-day RSI level of ~44.93.

Key Risks

• Risk of Pandemic: COVID has impacted the sector, as well as in-store sales revenue and the uncertainty of new variants of the virus still lingers on.   
• Inflation Risk: Inflation has been reported at 9% during April 2022 and poses a risk to consumer appetite for retail expenses.  

Financial Highlights (for the 13-week period ended 26 March 2022, as of 14 April 2022)

(Source: Company Website)

• Digital Sales: Digital segment revenue’s contribution was at 35% of the total sales in Q3FY22.     
• Inventory: The Group reported inventories at £224 million as of 26 March 2022, compared to £193 million as of end of Q3FY21.  

One Year Share Price Chart

(Source: REFINITIV; Analysis done by Kalkine Group)

Valuation Methodology: Price/Earnings Approach (FY23E)

Conclusion

The management expects FY22 PBT to be in line with analyst estimates consensus of £207 million.

The stock made a 52-week high and low of GBX 1,557.73 and GBX 814.00, respectively.

Based on the increase in total sales, market share gains and support from the valuation as done using the above method, we have given a “Buy” recommendation on Dunelm Group PLC at the closing market price of GBX 886.50 (as of 30 May 2022) with lower double-digit upside potential based on 13.03x Price/NTM Earnings (approx.) on FY23E earnings per share (approx.).

Please note markets are trading in a highly volatile zone currently due to certain macro-economic and geopolitical tensions prevailing. Therefore, it is prudent to follow a cautious approach while investing.

Note 1: The reference data in this report has been partly sourced from REFINITIV.

Note 2: Investment decision should be made depending on the investors’ appetite on upside potential, risks, holding duration, and any previous holdings. Investors can consider exiting from the stock if the Target Price mentioned as per the Valuation has been achieved and subject to the factors discussed above.

Note 3: Dividend Yield may vary as per the stock price movement.

Note 4: Target Price refers to a price level which the stock is expected to reach as per the relative valuation method and or technical analysis taking into consideration both short-term and long-term scenarios.

Note 5: ‘Kalkine reports are prepared based on the stock prices captured either from the London Stock Exchange (LSE) and or REFINITIV. Typically, both sources (LSE and or REFINITIV) may reflect stock prices with a delay which could be a lag of 15-20 minutes. There can be no assurance that future results or events will be consistent with the information provided in the report. The information is subject to change without any prior notice.’

Technical Indicators Defined: -

Support: A level where-in the stock prices tend to find support if they are falling, and downtrend may take a pause backed by demand or buying interest.

Resistance: A level where-in the stock prices tend to find resistance when they are rising, and uptrend may take a pause due to profit booking or selling interest.

Stop-loss: It is a level to protect further losses in case of unfavorable movement in the stock prices.

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