MARKET REPORT: Housing slowdown puts the squeeze on Dunelm

Dunelm shares slid amid concerns over the homeware retailer’s ability to withstand the cost of living crisis and a weaker housing market.

In a note to clients, analysts at the Royal Bank of Canada (RBC) said consumers were being forced to spend more selectively given rising mortgage rates and higher food prices. 

The broker downgraded its rating on Dunelm’s stock to ‘underperform’ from ‘sector perform’ and cut the target price to 1000p from 1300p.

‘Dunelm remains a well-managed business, with a strong position in the UK homewares market,’ said RBC’s brokers.

‘However, given a softer housing market and ongoing pressures on consumer spending, we expect growth to be hard to come by for Dunelm in the short-term.’

Shares down: Analysts at the Royal Bank of Canada downgraded its rating on Dunelm’s stock to ‘underperform’ from ‘sector perform’ and cut the target price to 1000p from 1300p

RBC pointed towards the strong link between housing activity and consumer confidence, given that a house is the ‘ultimate big-ticket purchase’. 

It said homebuyers are likely to spend a considerable amount of money on goods for their homes. 

But with the housing market on a weaker footing amid rising interest rates, analysts at the investment bank said Dunelm’s business is likely to take a hit. This is alongside a slowdown in online growth following a strong performance during the pandemic.

It was not all doom and gloom, according to the broker, as Dunelm has benefited from lower freight costs and passed some of this on to consumers.

Shares sank 4.3 per cent, or 48p, to 1072p yesterday.

The FTSE 100 edged down 0.1 per cent, or 7.54 points, to 7519.72 as the FTSE 250 rose 0.1 per cent, or 26.02 points, to 18533.79. 

AstraZeneca clawed back some of its losses a day after it suffered a setback for its cancer drug.

Stock Watch – Restore 

Restore tumbled after it issued another profit warning, outlined job cuts and announced that boss Charles Bligh was leaving.

The digital and information management company, which is made up of five businesses, said in May that it expected to report a profit of between £41million and £43million for 2023 which fell short on its previous forecast of £45million.

But it now expects to make just £31m of profit and will axe 230 jobs to save £4.5million. 

Shares fell 27.8 per cent, or 64p, to 166p.

Shares in the pharma giant gained 2 per cent, or 206p, to 10580p.

British Gas owner Centrica made gains after investment bank JP Morgan raised the target price to 150p from 140p. Shares rose 0.5 per cent, or 0.65p, to 125.35p.

Haleon, the Sensodyne toothpaste maker, traded higher despite target price cuts from Barclays and Deutsche Bank.

The blue-chip firm, which is also behind Otrivine nasal drops and painkillers Panadol and Advil, is reportedly looking to sell its nicotine gum business.

Bloomberg reported that Nicotinell could be worth as much as £629m.

Shares inched up 0.1 per cent, or 0.25p, to 321p.

Digital mental health provider Kooth said a four-year contract – which includes building a mobile app for 13-to-25-year-olds in California – will be worth at least £148million.

In March, the group was awarded the deal by the California Department of Health Care Services, which has pledged to invest nearly £4billion in youth health.

Kooth’s work should start in January next year and will run through to June 2027.

As a result, the company said it hoped to hire more than 200 staff over the next year and increased its revenue forecast for 2023 to at least £34million – way above the £24.3million expected by analysts. Shares soared 31.8 per cent, or 83p, to 344p.

Troubled banknote printer De La Rue received a boost after a major activist shareholder upped its stake in the group.

The shares rose 11.1 per cent, or 5.4p, to 54p after Crystal Amber, which has fought a long-running battle with De La Rue’s board to try to revive the business following a string of profit warnings, raised its stake in the firm to 15.2 per cent from just under 10 per cent previously.

Crystal Amber’s investment manager Richard Bernstein said it believed the firm’s value was ‘far higher’ than its market cap, which is around £95million.