Source: Sharecast
The bank said that looking at the industry data, UK home-related retail had a tough year in 2024, but it’s encouraged by Dunelm's ability to grow its sales and take market share despite this.
"Its model remains well run and cash generative, and it has more runway for growth now, given its recent acquisition in Ireland," RBC said. "As such, 12x CY25 estimated price-to-earnings feels undemanding to us, and we upgrade to outperform."
The bank also said Dunelm has a strong track record of additional cash returns, having returned more than £700mn of cash via special dividends since its IPO in 2006.
RBC said it forecasts a 25p per share special dividend to be announced at Dunelm's first-half results later this month.
"Even with this, we expect Dunelm to end FY25 towards the lower end of its 0.2-0.6x target net debt/EBITDA corridor," it said. "As such, it should have ample headroom for additional cash returns to continue."
RBC forecasts total special dividends of around £195mn between FY25-27 but estimates that the homeware retailer has the firepower to return at least another £100mn, without exceeding its leverage targets.
The bank maintained its 1,175p price target on the stock.
At 0950 GMT, the shares were up 2.8% at 988.50p.