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The early May bank holiday is a crucial date in the home improvement market. This weekend, Britons traditionally set about improving their properties in the hope that sunny days are ahead.
Households have not yet started spending money on bistro sets for outdoor dining, sofas and paint pots, thanks to bad weather and budget pressures. But investors looking to improve their portfolios will be interested to know that the reluctance to commit money to projects big and small could be coming to an end.
Nigel Yates of Axa Investment Managers senses the change in mood, saying: “We have an increasingly positive view of the British consumer, thanks to falling inflation, tax cuts and strong employment trends.”
Such is the confidence that more of us are about to embark on a makeover that analysts at Barclays have raised their target price on the shares of kitchen joinery maker Howdens from 900p to 1,010p, up from 880p currently. . But other bets on DIY, furniture and furnishings are worth considering, and three other players could update a stylish portfolio.
Dunelmo
Nick Wilkinson, chief executive of the FTSE 250 home furnishings retailer, declares that “everyone needs a bit of Dunelm in their life” and is on track to achieve this ambition, with 182 stores and an impressive online operation.
Sunny days are coming: it is worth considering other bets on DIY, furniture and decoration
Yates describes the chain, the biggest player in the £3.64bn home goods sector, as “a high-quality, well-run retailer”.
Demand for Dunelm ranges has softened of late and the stock is down 9 per cent in the last six months. But there are compelling reasons to take risks at this level. Simon Murphy, fund manager of VT Tyndall Unconstrained UK Income, said: “The company has gained market share recently and we anticipate this growth should start to accelerate again as consumer confidence improves.”
He also highlights Dunelm’s 4 per cent dividend yield, which could be as comforting as a Dunelm Dorma spring duvet.
Next
This £11bn company may be more associated with fashion. But its strength in home goods (it is number three in the market) is one of the reasons why Shore Capital’s Clive Black considers Next to be a “high class act”.
Next appears to have recovered more quickly than its peers from the spending slump that followed the pandemic gearing wave. This may be because its offering is “more adventurous”, as Next boss Lord Wolfson says.
Online at Next you can find all the basics, plus trendy items from smaller brands like Rockett St George, whose quirky products don’t come cheap. But Wolfson intends to offer more aspirational products while also offering value.
What’s next is not moving upmarket, but rather a “subtle shift in emphasis” is occurring, with more customers buying less but buying better.
The share price has risen 33 per cent in the last six months to 9,092p. Goldman Sachs has set a price target of 10,700 pence, presumably on the basis of this stock being the foundation of a portfolio.
Sainsbury’s
This week marks the 60th anniversary of the founding of the great British brand Habitat, now part of the Argos division of the Sainsbury’s supermarket chain.
Habitat, the brainchild of the late designer Sir Terence Conran, helped shape the national preoccupation with the home and its decoration.
Although Argos is seventh in the home goods market, Sainsbury’s places much more emphasis on food in its Next Level scheme, meaning Argos’ performance has been “disappointing” in the opinion of analysts.
But this month, Sainsbury’s chief executive Simon Roberts reported that customers are buying groceries, suggesting they may also feel able to improve their homes.
Sainsbury’s shares have fallen 12 per cent since the start of the year, which UBS analysts say could be an entry point.
Among those who could have big plans for Sainsbury’s are US private equity groups and billionaire Czech investor Daniel Kretinsky, who owns 10 per cent of the company.