Investment Column: Shop for Dunelm when the shares soften

Dunelin

Our view: Hold for now

Share price: 235p (+24.75p)

Dunelm Group's share price performance over the last year is almost a mirror image of that of most retailers. The out-of-town homeware group has seen its stock gain 80 per cent in the last 12 months as a series of upbeat trading updates and results have made the group the belle of the retail sector.

The group issued its full-year trading update yesterday, saying that like-for-like sales grew at 5 per cent in the 26 weeks to 27 June, while the gross margin was up 120 basis points year on year. The numbers were predictably good, but beat the estimates of most analysts, sending the stock up by 11.8 per cent.

The market seemed happy to hear what it wanted to, however. Yes, the numbers are stellar, and are made to look even more so by the woeful performance of others in the sector, but even the chief executive, Will Adderley, warns that the next 12 months could be tough, especially as consumers are likely to face higher tax bills and bigger mortgage payments.

We like Dunelm and, over the long term, we would be happy buyers. However, yesterday's increase in the share price would persuade us to take profits at this point and wait for a little bit of weakness before coming back in.

We would be concerned that after the share price's meteoric rise over the last 12 months, Dunelm is now on a par with most of its peers, leaving little for new punters to get their teeth into. Analysts at UBS, Dunelm's broker, argue that even though trading on 15 times earnings per share puts the group in line with the rest of the industry, the stock deserves a 20 per cent premium. Mr Adderley says Dunelm is taking market share and has potential to grow.

We are nervous that investors may have missed the boat. Dunelm is a top performer, and hats off to the group for that, but this is not the optimum time to buy the shares. Hold for now.

Cranswick

Our view: Hold for now

Share price: 612.5p (+9p)

Mexican flu, influenza, H1N1 – Martin Davey, chairman of the pork products group Cranswick, will call it anything other than what the rest of the world calls swine flu.

You could be forgiven for assuming that pigs are not the flavour of the month, but judging by Cranswick's first-quarter numbers published yesterday, consumers are rightly not associating the outbreak of swine flu with sausages and spare ribs.

Indeed, Cranswick is flying. Mr Davey says that the last six months are among the strongest the group has ever seen, and while the hot weather of recent weeks has given the company a fillip as people opt for more barbecues, consumers are increasingly recognising the health benefits of pork.

That may be so, but no doubt the group's share price has got investors' blood pressure soaring. The company's impressive trading performance has not yet been reflected in the stock, and Mr Davey says the brokers shrug their shoulders when asked why.

Those at Evolution argue: "Cranswick is a well-managed and highly cash-generative business with attractive fundamentals across the board. The company looks undervalued on 9.3 times 2010 earnings versus the food sector on 12.2 times. We reiterate our buy recommendation and 700p target price."

The stock was up yesterday, but it would appear that investors, for whatever reason, are still not sold on the idea. We like the group, but would wait for the rest of the market to show signs of catching up. Hold for now.



Huntsworth

Our view: Buy

Share price: 57p (unchanged)

"It isn't as bad as we all thought it was going to be," says Lord Chadlington of the recession. In fact, looking at the public relations group Huntsworth's performance over recent months, the great financial meltdown of 2009 has not really materialised.

Lord Chadlington says the group, which includes a number of financial, health and public affairs PR firms, has 75 per cent of expected revenues for next 12 months already booked. As such, and being true to his PR background, Lord Chadlington argues that visibility is what most concerns investors.

It is not that all has been too rosy, and the group does expect full-year profits to be close to, or slightly below, last year. Clients want more for their money and, of course, everyone is keeping an eye on bad debts.

Nonetheless, Huntsworth is doing well despite the recession, and investors cannot ignore the 80 per cent rise in the stock over the last six months. Lord Chadlington reckons that the shares are still undervalued, arguing that the analysts tell him the stock should be closer to the 90p mark.

We reckon this could be wishful thinking, but we are impressed by the group's performance. Buy.

PROMOTED VIDEO
News
ebooksNow available in paperback
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

Reach Volunteering: Trustee – PR& Marketing, Social Care, Commercial skills

Voluntary Only - Expenses Reimbursed: Reach Volunteering: Age Concern Slough a...

Reach Volunteering: Charity Treasurer

Voluntary Only - Expenses Reimbursed: Reach Volunteering: Crossroads Care is s...

SThree: Trainee Recruitment Consultant - Soho

£20000 - £25000 per annum + OTE £35,000: SThree: We consistently strive to be ...

Ampersand Consulting LLP: Markit EDM (CADIS) Developer

£50000 - £90000 per annum + benefits: Ampersand Consulting LLP: Markit EDM (CA...

Day In a Page

Mau Mau uprising: Kenyans still waiting for justice join class action over Britain's role in the emergency

Kenyans still waiting for justice over Mau Mau uprising

Thousands join class action over Britain's role in the emergency
Isis in Iraq: The trauma of the last six months has overwhelmed the remaining Christians in the country

The last Christians in Iraq

After 2,000 years, a community will try anything – including pretending to convert to Islam – to avoid losing everything, says Patrick Cockburn
Black Friday: Helpful discounts for Christmas shoppers, or cynical marketing by desperate retailers?

Helpful discounts for Christmas shoppers, or cynical marketing by desperate retailers?

Britain braced for Black Friday
Bill Cosby's persona goes from America's dad to date-rape drugs

From America's dad to date-rape drugs

Stories of Bill Cosby's alleged sexual assaults may have circulated widely in Hollywood, but they came as a shock to fans, says Rupert Cornwell
Clare Balding: 'Women's sport is kicking off at last'

Clare Balding: 'Women's sport is kicking off at last'

As fans flock to see England women's Wembley debut against Germany, the TV presenter on an exciting 'sea change'
Oh come, all ye multi-faithful: The Christmas jumper is in fashion, but should you wear your religion on your sleeve?

Oh come, all ye multi-faithful

The Christmas jumper is in fashion, but should you wear your religion on your sleeve?
Dr Charles Heatley: The GP off to do battle in the war against Ebola

The GP off to do battle in the war against Ebola

Dr Charles Heatley on joining the NHS volunteers' team bound for Sierra Leone
Flogging vlogging: First video bloggers conquered YouTube. Now they want us to buy their books

Flogging vlogging

First video bloggers conquered YouTube. Now they want us to buy their books
Saturday Night Live vs The Daily Show: US channels wage comedy star wars

Saturday Night Live vs The Daily Show

US channels wage comedy star wars
When is a wine made in Piedmont not a Piemonte wine? When EU rules make Italian vineyards invisible

When is a wine made in Piedmont not a Piemonte wine?

When EU rules make Italian vineyards invisible
Look what's mushrooming now! Meat-free recipes and food scandals help one growing sector

Look what's mushrooming now!

Meat-free recipes and food scandals help one growing sector
Neil Findlay is more a pink shrimp than a red firebrand

More a pink shrimp than a red firebrand

The vilification of the potential Scottish Labour leader Neil Findlay shows how one-note politics is today, says DJ Taylor
Bill Granger recipes: Tenderstem broccoli omelette; Fried eggs with Mexican-style tomato and chilli sauce; Pan-fried cavolo nero with soft-boiled egg

Oeuf quake

Bill Granger's cracking egg recipes
Terry Venables: Wayne Rooney is roaring again and the world knows that England are back

Terry Venables column

Wayne Rooney is roaring again and the world knows that England are back
Michael Calvin: Abject leadership is allowing football’s age-old sores to fester

Abject leadership is allowing football’s age-old sores to fester

Those at the top are allowing the same issues to go unchallenged, says Michael Calvin