Broker tips: Dunelm, Taylor Wimpey, Everyman Media
By Iain Gilbert
Date: Friday 17 Jan 2025
(Sharecast News) - Berenberg has reiterated its 'buy' rating for homeware retailer Dunelm despite a cool reaction to the company's trading update this week, saying it still sees the stock as a defensive investment.
Dunelm's share price dropped 6% on Thursday after the retailer revealed that sales grew by just 1.6% year-on-year over the second quarter, well below the 5% expected by the market despite "relatively easy" a prior-year comparative of 1%, Berenberg said.
"The company faced particularly volatile trading conditions, not just week-to-week, but intraweek, which likely reflected nervousness about the economy and employment prospects among consumers," the broker said.
However, Berenberg said there was "pleasingly little damage to estimates", with the company remaining comfortable with existing pre-tax profit consensus forecast range of £208m-218m for the full year.
"We continue to like this relatively defensive retailer, which can drive sales through attractive prices and product, and pursue growth via new space and online, while maintaining strong margins, ROIC, FCF and an attractive dividend," the broker said.
Shares trade at just 13 times current-year earnings, which the broker said "looks undemanding [...] for the combination of quality, defence and ongoing moderate growth potential".
RBC Capital Markets downgraded its target price on Taylor Wimpey to 155p from 175p but maintained its 'outperform' rating on the stock after its latest trading statement.
On Thursday, the housebuilder backed its profit expectations for the full year but sounded a note of caution as it pointed to increased build costs in 2025. It warned that while price negotiations for 2025 are ongoing, it expects increased build cost pressure as a result of the changed economic backdrop, as suppliers look to factor in the impacts of the recent Budget.
In a note written after the update on Thursday, RBC said: "We have been surprised by the significant change in tone of Taylor Wimpey's commentary since their last trading update in November 2024.
"In November their glass was very much half full, it was lean, agile and firing on all cylinders. Today, the glass looks half empty, Taylor Wimpey appears, like many of us, to have put on a bit of weight over Christmas and caught a January cold.
"Whereas other housebuilders this week have been firmly on the front foot, Taylor Wimpey seemed to have lost its November mojo and be more comfortable on its back foot."
RBC said the housebuilder was so downbeat "it couldn't see the bulls for the bears" and noted that the company's outlook assumed no underlying house price inflation, no wage growth, no improvement in mortgage rates, no land sales, and no significant pick-up in housing transactions.
"The implication: costs up, prices (at best) flat, therefore margins will go down," it said. "Despite its efforts to turn us against, we still see reasons to be cheerful. We believe that our 30%-below consensus dividend per share of 7p has very, very firm foundations and offers an attractive yield of more than 6%."
Analysts at Canaccord Genuity lowered their target price on cinema operator Everyman Media Group from 180.0p to 160.0p on Friday following the group's profit warning earlier in the morning.
Canaccord Genuity said while Everyman's FY financial outcome was not as expected, the group had made further strategic and operational progress across the year, increasing market share to 5.4% from 4.8% and opening three new sites.
Looking ahead, with no further impact from the WGA and SAG-AFTRA strikes, Everyman has confidence in the film slate for 2025, which was also expected to be distributed across the year.
"We have updated forecasts to reflect the FY24 outcome and have also adjusted our outer year expectations to reflect the lower base but also a more cautious stance on spend given the macro backdrop," said the Canadian bank.
"Whilst performance across the final quarter of FY24 did not transpire as hoped, we continue to believe that the Everyman brand remains well positioned for future success as film production continues to normalise with plenty of further UK expansion potential for the group's elevated and differentiated brand offer."
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