Shore Capital stays at 'buy' on Dunelm

(Sharecast News) - Analysts at Shore Capital upgraded their view on Dunelm on Friday, arguing that the sharp share‑price reaction to the retailer's new strategy was overdone despite the scale and cost of the planned investment programme. Shore Capital said Dunelm's refreshed plan was ambitious and carried execution risk, but aimed squarely at restoring mid‑to‑high single‑digit annual sales growth through faster store openings, estate renewals, technology upgrades and a stronger digital offer.

While the near‑term trade‑off was clear - including restructuring charges, higher capex, margin pressure and a likely pause in special dividends - Shore Capital said early trials pointed to genuine top‑line benefits.

Dunelm's full‑year results were broadly in line, but softer early trading in FY27 underlined the challenge of low growth and persistent cost inflation. Management's response, Shore Capital said, was a multi‑year investment push designed to reinforce Dunelm's position in a fragmented homewares market, where it still holds only around 8% share.

Shore Capital said investment will weigh on margins, with the broker expecting them to drift towards 11% and free cash flow to weaken. However, it said Dunelm's disciplined track record and the contribution from an accelerated store rollout should help profits recover once the initial dilution passes.

With the shares trading on a single‑digit forward earnings multiple and offering a yield of around 6%, Shore Capital said the market was giving too little credit to the medium‑term growth potential. It reiterated its 'buy' rating and kept its 1,000p target price.







Reporting by Iain Gilbert at Sharecast.com