Jefferies upgrades Dunelm to 'buy', says recent de-rating was overdone

Jefferies upgraded Dunelm Group Plc   Follow on Monday to 'buy' from 'hold' as it said the recent de-rating was overdone.
The broker, which kept its price target on the shares at 1,075p, said it has long regarded Dunelm as a high‑quality retailer, though valuation and slower share gains have limited its enthusiasm.

"While we still expect medium-term profit before tax growth of circa 5%, the recent de-rating is overdone, in our view," it said.

Jefferies noted that the shares fell around 20% on the back of weaker second-quarter trading. "Of the retailers in the last month, the reaction to Dunelm's stood out to us," it said.

"On the back of a softer Q2 performance, which saw growth slow to +1.6% (Q1 +6.2%), FY26 PBT expectations were guided circa 4% lower. And yet the shares fell by circa 20%."

Jefferies pointed out that trading was affected by heightened competitive activity and softer furniture sales, partly driven by now-resolved availability issues.

"In any case, we view it as a marked over-reaction, particularly given the unusual quarterly trading pattern - we would not be surprised if there had been some pull‑forward from the Q2 miss into the Q1 beat; certainly the H1 revenue growth number looked robust enough at +3.6%."

Currently trading on 11x FY27 estimated price-to-earnings, roughly 30% below the long-term average, Jefferies said it sees "an attractive entry point to buy".

At 1400 GMT, the shares were up 0.1% at 937.75p.