MARKET REPORT: Housing slowdown puts the squeeze on Dunelm

Dunelm shares fell on concerns about the home goods 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 for Dunelm’s stock from “sector perform” to “underperform” and lowered its price target from 1,300 pence to 1,000 pence.

Dunelm remains a well-run business, with a strong foothold in the UK home goods market.

“However, given a weaker housing market and continued pressure on consumer spending, we expect growth to be difficult for Dunelm in the near term.”

RBC pointed to the strong link between housing activity and consumer confidence, as a home is the “ultimate big purchase.”

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

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

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

Shares fell 4.3 percent, or 48 pence, to 1,072 pence yesterday.

The FTSE 100 fell 0.1 percent, or 7.54 points, to 7519.72, while the FTSE 250 rose 0.1 percent, or 26.02 points, to 18533.79.

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

Stock Watch – Restore

Recovery collapsed after it issued another profit warning, cut jobs and announced that boss Charles Bligh would leave.

The five-company digital and information management firm said in May it expected earnings of between £41m and £43m for 2023, which was lower than its previous forecast of £45m.

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

Shares fell 27.8 percent, or 64 pence, to 166 pence.

Shares in the pharmaceutical giant gained 2 percent, or 206p, to 10580p.

British gas owner Centrica made a profit after investment bank JP Morgan raised its price target from 140 pence to 150 pence. Shares rose 0.5 percent, or 0.65 pence, to 125.35 pence.

Haleon, Sensodyne’s toothpaste maker, was trading higher despite target price cuts from Barclays and Deutsche Bank.

The blue-chip company, which is also behind Otrivine nasal drops and pain relievers Panadol and Advil, is reportedly planning to sell its nicotine gum business.

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

Shares rose 0.1 percent, 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 £148 million.

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

Kooth’s work should begin in January next year and run through June 2027.

As a result, the company said it hoped to hire more than 200 employees in the coming year and raised its revenue forecast for 2023 to at least £34m – well above the £24.3m expected by analysts. Shares rose 31.8 percent, or 83 pence, to 344 pence.

Troubled banknote printer De La Rue got a boost after a large activist shareholder increased his stake in the group.

Shares rose 11.1 percent, or 5.4 pence, to 54 pence after Crystal Amber, which has been battling a protracted battle with De La Rue’s board to try to revive the company following a string of profit warnings, increased his stake in the company to 15.2 percent from just under 10 percent previously.

Crystal Amber’s investment manager, Richard Bernstein, said he believed the company’s value was “much higher” than its market capitalization, which is around £95 million.