Broker snap: Cash return looking likely at Dunelm

6th Jul 2012 11:11

Nomura has hiked its target price for homewares retailer Dunlem from 530p to 580p and reiterated its 'buy' call on the stock following Thursday's solid fourth-quarter trading update.Like-for-like (LFL) sales in the final three months of the group's financial year increased by by 10.4% with wet weather driving consumer spend towards indoor homewares, the broker highlights in a research report on Friday. Reported sales increased by 21.2% in the quarter. Excluding the weather boost, underlying LFL sales still grew by 4-5% which is a "solid underlying performance", according to Nomura.It also highlights that space opportunity remains high at Dunelm with 10 new stores committed for 2013. New space contributed 10.5% to second-half growth.With pre-tax profit guidance above expectations at £96m, Nomura has raised its 2013 forecast by 5% to £107m.The broker said that strong cash generation means that a cash return to shareholders is appearing more likely in the near term. "We now model in a total dividend of 39p (25p special), suggesting a 2012 dividend yield of 7.5%," the broker said."In our view, Dunelm remains the key growth stock in the UK, with a strong balance sheet, space potential and c24% return on invested capital."Shares were flat at 530.5p on Friday morning, following a strong rise the day before.BC