MARKET REPORT: Housing slowdown puts pressure on Dunelm

Dunelm shares fell amid concerns about the home goods retailer’s ability to weather the cost-of-living crisis and a weaker housing market.

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

The broker downgraded Dunelm shares to ‘underperform’ from ‘sector underperform’ and lowered the price target to 1,000 pence from 1,300 pence.

“Dunelm remains a well-run business, with a strong position in the UK housewares market,” RBC brokers said.

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

RBC noted the strong link between real estate activity and consumer confidence, as a house is the ‘highest value purchase in the end’.

He 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 was likely to take a hit. This comes on top of a slowdown in online growth after strong performance during the pandemic.

According to the broker, it wasn’t all gloom as Dunelm has benefited from lower freight costs and passed some of this on to consumers.

The shares sank 4.3 percent, or 48 pence, to 1,072 pence yesterday.

The FTSE 100 was down 0.1 percent, or 7.54 points, at 7,519.72 while the FTSE 250 was up 0.1 percent, or 26.02 points, at 18,533.79.

AstraZeneca recouped some of its losses one day after suffering a setback with its cancer drug.

Stock Watch – Restore

Restore collapsed after it issued another profit warning, outlined job cuts and announced chief 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 £41m and £43m by 2023, which fell short of its earlier forecast of £45m.

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

The shares fell 27.8 percent, or 64 pence, to 166 pence.

Shares of the pharmaceutical giant gained 2 per cent, or 206p, to 10580p.

British Gas owner Centrica took a profit after investment bank JP Morgan raised its price target from 140 pence to 150 pence. The shares rose 0.5 percent, or 0.65 pence, to 125.35 pence.

Haleon, the maker of Sensodyne toothpaste, traded higher despite price cut targets from Barclays and Deutsche Bank.

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

Bloomberg reported that Nicotinell could be worth up to £629 million.

The shares rose 0.1 percent, or 0.25 pence, to 321 pence.

Digital mental health provider Kooth said a four-year contract, which includes the creation of a mobile app for people aged 13-25 in California, will be worth at least £148m.

In March, the group was awarded the deal by the California Department of Health Care Services, which committed to investing nearly £4 billion in young people’s health.

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

As a result, the company said it expected to hire more than 200 employees over the next year and raised its 2023 revenue forecast to at least £34m, well above the £24.3m expected by the analysts. The shares soared 31.8 percent, or 83 pence, to 344 pence.

Troubled ticket printer De La Rue got a boost after a major activist shareholder increased its stake in the group.

The shares rose 11.1 percent, or 5.4 pence, to 54 pence after Crystal Amber, who has fought a long battle with De La Rue’s board to try to revive the business after a series of warnings on earnings, it increased its 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 £95m.