Broker tips: Dunelm, EasyJet, IAG, Ryanair
By Iain Gilbert
Date: Tuesday 24 Jan 2023
(Sharecast News) - Analysts at Berenberg raised their target price on retailer Dunelm from 1,130.0p to 1,240.0p on Tuesday, stating the group's numbers "increasingly well underpinned".
While cognisant of well-publicised uncertainties affecting the consumer sector, Berenberg said it believes Dunelm's "very strong" second-quarter trading update, with revenue growth of 18% and building momentum as the quarter progressed, leaves FY23 expectations of £178.0m of adjusted pre-tax profits "increasingly well underpinned".
Berenberg also reckons Dunelm is on track to meet its guidance for a gross margin of roughly 50% for the year, stating that while there will be inflationary pressures in its cost base, certain one-off costs in respect of stockholding and new e-commerce and furniture facilities should drop out.
The German bank thinks Dunelm represents one of the "highest-quality retailers" in its UK coverage and also pointed to a continued market share opportunity arising from its strong omnichannel proposition, a weakening competitive environment, and an ongoing expansion into the furniture category.
"We believe that Dunelm can continue to provide additional shareholder returns, underpinning a total dividend yield of 6.5%. While not our base-case forecast, we believe a special dividend could be declared as early as H1 results on 15 February," concluded Berenberg.
Liberum said on Tuesday that the airline industry was in the early stages of recovery from the pandemic, stating positives were "relatively careful" capacity growth plans, stabilising jet fuel prices, and "encouraging" forward booking commentary.
While Liberum noted that macro indicators were deteriorating, it sees headroom for the demand/supply balance to remain favourable with capacity mostly still below 2019 levels.
The broker lifted its price target on easyJet to 500.0p from 430.0p, while IAG and Ryanair's target prices were lifted to 220.0p from 145.0p and on Ryanair from €16 to €17. All three stocks were maintained at 'buy' but EasyJet was its preferred stock.
"We see easyJet offering the best risk/reward balance at these levels. The upside from Holidays, seasonal pilot contracts and aircraft redeployment is underappreciated," Liberum said.
"Structural improvements mean easyJet should be more profitable than pre-pandemic, although the strategic progress is masked by higher fuel costs and inflationary pressures. Cautious capacity growth should support pricing power in the face of macro risks. We have raised our forecasts on better revenue assumptions, reading across Ryanair's recent positive update."
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