Research: Consumer
Dunelm Group’s (DNLM’s) H124 results demonstrated the benefits of its strategy of broadening its addressable market by strengthening the core offer and expanding into newer categories, while also growing the store base and marketing more effectively. This is driving growth in the active customer base, who shop with greater frequency, leading to further market share gains in a static market. The broadening appeal of its products is demonstrated by growth being broad-based by geography, customer age and income group.
Dunelm Group |
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Retail |
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19 February 2024 |
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Dunelm Group’s (DNLM’s) H124 results demonstrated the benefits of its strategy of broadening its addressable market by strengthening the core offer and expanding into newer categories, while also growing the store base and marketing more effectively. This is driving growth in the active customer base, who shop with greater frequency, leading to further market share gains in a static market. The broadening appeal of its products is demonstrated by growth being broad-based by geography, customer age and income group.
Volume gains, cost efficiencies funding growth
DNLM’s H124 year-on-year revenue growth of 4.5% to £872m included an impressive 6% volume increase, partially offset by lower price/mix from category expansion. A more favourable gross margin, up by 1.6pp year-on-year to 52.7% (due to lower freight rates and disciplined promotion), and efficiencies in operating costs (0.7% of sales), partially mitigated the growth in operating costs (incremental 3.9% of sales) from underlying inflation, higher volume and investment in the customer proposition. Therefore, operating profit grew by 4.2%, marginally below revenue growth. The higher UK corporate tax rate and investment in the store estate caused a slight reduction in free cash generation relative to sales. The cash generation enhanced the already conservative balance sheet (net cash £6.2m end-December 2023) and enabled another special dividend of 35p/share (H123: 40p/share), alongside a higher interim dividend of 16p/share (H123: 15p/share).
Confident in meeting consensus profit expectations
Management reaffirmed that its FY24 profit expectations are in line with the companycompiled consensus, which is for an average PBT of £202m within the £199–207m range. The average implies 4.9% y-o-y growth in H224, almost exactly in line with H124’s achieved 4.8% growth. The expected full-year outturn includes a less favourable, but still healthy, gross margin progression (+100bp vs FY23) than achieved in H124 due to an increasing forex headwind and lower tailwind from changes in freight costs, as well as the typical lower H2 margin due to promotional activity.
Discount to recent multiples, attractive dividend yield
DNLM is trading at a discount (FY24e EV/sales, excluding leases, multiple of 1.3x) to its average multiple since FY17 (1.4x), despite consensus estimating similar levels of profitability for FY24 (operating margin of 12.2%) to the average since FY17 (11.9%). The FY24e P/E multiple of 14.9x is also at a discount to the postFY17 average of 15.4x.
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Consensus estimates
Source: Refinitiv at 16 February 2024. *Fully diluted. |
EDISON QUICKVIEWS ARE NORMALLY ONE-OFF PUBLICATIONS WITH NO COMMITMENT TO WRITING ANY FOLLOW UP. QUICKVIEW NOTES USE CONSENSUS EARNINGS ESTIMATES.
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Research: Healthcare
Sareum Holdings has announced positive clinical progression for SDC-1801, its lead asset and novel TYK2/JAK1 inhibitor targeting the autoimmune space (with an initial focus on psoriasis). Preliminary data from the single ascending dose (SAD) study (part 1) and the food effects study (part 3), from its ongoing Phase Ia trial (in healthy volunteers) for SDC-1801, indicated a favourable safety profile and were supportive of once-daily oral dosing. The multiple ascending dose (MAD) arm continues to onboard patients and the Phase Ia trial’s full safety data are expected in H1 CY24. The swift progression of SDC-1801 through the clinic is encouraging, given that the study commenced in May 2023, and we see the initiation of a Phase Ib study (if Phase Ia data are supportive) in psoriasis patients in H224 (target completion end-CY24) as a major inflection point. Management expects to be funded to this milestone, supported by the £5m equity prepayment facility (£2.3m drawn down to date) and expected tax credits of £1.6m.