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(Sharecast News) - Dunelm shares sparked on Thursday after Deutsche Bank upgraded the homeware retailer to 'buy' from 'hold' ahead of its strategy update.
DB said it reckons management will outline a revamped digital offer and increased store investment to drive accelerating earnings growth as the company progresses towards 10% market share.
The bank, which hiked its price target to 1,050p from 850p, said profit warnings this year have raised doubts over mid-term margins and the consistency of market share gains but it likes the underlying business model.
Deutsche noted that cash conversion is strong at around 70% with a circa 9% free cash flow yield in Cal-27E. The bank lifted its FY27 pre-tax profit estimate to £219m from £210m, driven by stronger sales and stable pre-tax profit margin.
DB pointed out that the shares are down around 25% year-to-date, underperforming the FTSE 350 Retail Index by approximately 30%. "Trading at a 10.3x P/E, we think little credit is being given to the earnings upside potential from faster store openings and refits," it said.
At 1237 BST, the shares were up 3.3% at 859.50p.
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