RBC Capital downgrades Dunelm after rally

RBC Capital Markets downgraded its rating on homeware retailer Dunelm to ’sector perform’ from ‘outperform’ on Monday following the recent rally in the shares.

The bank said Dunelm remains a well-managed, cash generative business with a strong digital offer and range advantage.

"However, post a recent rally in the shares, we see less valuation upside now, particularly given likely pressure on the UK housing market and extended social distancing requirements."

RBC said that once stores re-open - by the start of June it reckons - they are likely to be quieter for up to a year as a result of social distancing requirements.

"We think it will be harder for stores to achieve operating leverage due to likely lower sales densities. This may pressure group margins in the near term," it said.

It added that softer GBP/USD rate presents a gross margin headwind in H2 FY21 and into FY22.

The bank upped its price target on Dunelm to 950p from 900p.

At 0950 BST, the shares were down 1.3% at 863.50p.