Dunelm's growth prospects 'undervalued', says Jefferies

3rd Mar 2014 10:26

Growth prospects at homeware retailer Dunelm are 'undervalued', according to Jefferies which has initiated coverage on the stock with a 'buy' rating and 1,150p target price.Since Dunelm's stock market flotation at the end of 2006, the business immediately faced dramatic falls in UK consumer confidence, the broker explained.However, after persistent real wage declines over the past five years, the macroeconomic environment is now improving, it said."Consensus forecasts are for real personal disposable income to grow circa 2% in 2014 and 2015 and mortgage approvals are growing at over 30% a year. Both of these trends bode well for household goods sales generally, and particularly for Dunelm, as the UK's specialist homewares market leader," Jefferies said.The broker highlighted the company's recent investments in its multi-channel offer, saying that its three-hour Reserve & Collect service is a "key competitive advantage"."Having outperformed in a weak economy we predict that an improving macro-economic environment, together with investments in Dunelm's multi-channel offer, will lift earnings per share growth above 15% from fiscal year 2015," Jefferies said.The stock was down 1.5% on Monday morning at 978.77p, having risen by over 10% since the start of the year.BC