Must read weekly preview: Dunelm, Currys, Berkeley Group, ECB

Dunelm FY – Tuesday 8 September

Richard Hunter, Head of Markets, interactive investor says, “Following a full-year update in July, there should be little room for surprises in Dunelm Group (LSE:DNLM)'s results, although equally a strategy update is expected which should set the scene for the group’s immediate planned direction of travel.

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The update revealed that fourth quarter sales had risen by 2.9% to £428 million, leading to full-year growth of 3.1% to £1.83 billion. The profit number is expected to be in the region of £210 million, which would be in line with both estimates and the previous year. Despite its reputation as a value offering on home furnishings, the profit margin should reveal a healthy level of 52.5%, although promotional events elsewhere have proved a small headwind.

The strategy could well focus on Dunelm’s digital presence, where 45% of sales were conducted online in the final quarter, up by 3% from the corresponding period last year and from 37% in late 2023. In a sign of the times, the group has recently introduced an AI-powered shopping assistant on its app and any early progress will be sought by investors.

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More broadly, inflationary and cost of living concerns and increased taxes have tended to blight the sector and Dunelm is no exception. The shares have fallen by 24% in the year to date in what is an extremely challenging arena which includes heavyweights such as Next and Kingfisher, although the shares are up by 35% over the last four years. However, a generous dividend yield of 5.3% (turbocharged to 8.2% including specials) is a clear attraction for investors. The group has opened several superstores of late in some high profile areas and the acquisition of Home Focus in Ireland helps the group to dip its toes into overseas waters. Dunelm also continues to invest in its business, such as the introduction of a facility to manufacture its made-to-measure shutters and blinds and the revised strategy which is to be announced could provide a springboard.”

Currys trading statement – Thursday 10 September

Richard says, “Currys (LSE:CURY) is currently on something of a roll, with the shares having risen by 40% over the last year and by 90% over the last two years, following a glowing performance over its peak festive trading period which led to a profit guidance upgrade which the company went on to achieve.

The full-year results in July revealed a rise of 18% in adjusted profits to £191 million, a further £50 million share buyback and a boost to the dividend as the outgoing CEO said that the retailer was “trending in the right direction on every dimension that matters”. Indeed, year-end cash of £176 million represented a reduction in debt of more than £900 million since 2019.

An additional recent highlight has been the performance of its Nordics business, previously a material thorn in the side for the group, given that it accounts for 40% of overall revenues. The omnichannel offering is beginning to hit the spot, while market share gains, strong demand for kitchens and new categories and a broadly stable gross margin are all helping the healing process. 

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The rest of the group’s business is in the UK & Ireland, where the strategy to target higher margin revenue streams provides a strong backdrop and also brings recurring income, such as its mobile plans, Care and Repair, credit provision and protection plans. The group’s omnichannel offering continues to bear fruit, and indeed two-thirds of customers prefer to shop in store, partly as a result of the expert advice available on a face-to-face basis. This can also lead to a longer relationship with the customer as well as the potential of cross-selling. This latest update will come with high expectations that the trading momentum has been maintained.”

Berkeley Group trading statement – Friday 11 September

Richard says, “Berkeley Group Holdings (The) (LSE:BKG)’s full-year results in June revealed that the group found itself at the lower end of the current economic cycle due to a number of factors and, given wider updates on the housing market since then, there seems little to suppose that the situation will have materially changed. The shares have fallen by 12% so far this year, resulting in relegation to the FTSE250 in June, and by 42% since the pre-pandemic highs of January 2020.

This comes alongside the fact that Berkeley has been a highly regarded company for some considerable time, with its focus on long-term strategy a particular strength. Its accompanying comments in the results displayed both exasperation in the current situation but unflinching optimism for the future. The group lamented a deterioration in the UK economic backdrop and in particular the requirement for Government action in reducing the disincentives within the tax, planning and regulatory system as a whole. Berkeley notes that the time required to complete an apartment building in London through acquisition, planning, consultation and clearance is now eight years, whereas ten years ago it was five.

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More positively, looking through the fragility of sentiment in the near-term the group is confident that longer term prospects are intact. London remains undersupplied in terms of housing and this is compounding as developments slow. For potential buyers, there has been a period of strong wage growth and limited property inflation, coupled with adequate mortgage availability, while the current pressure on interest rates is likely to subside in time.

Berkeley’s conservative approach also resulted in net cash of £363 million, well ahead of the expected £300 million, and a robust balance sheet should enable the continuation of shareholder returns over the next years, currently skewed towards share buybacks in the absence of a dividend payment. The current “Berkeley 2035” strategy represents a marathon, not a sprint. It has a number of strands, with the headlines being projected growth in the Return on Capital Employed, further investment in the group’s recently launched “Build to Rent” platform (“Berkeley Living”) and an ongoing focus on shareholder returns. It remains to be seen whether the group’s strategic nous and unwavering focus on a longer-term strategy will reignite some interest in the stock alongside the update.”

ECB interest rate decision – Thursday 10 September

Victoria Scholar, Head of Investment, interactive investor says, “The European Central Bank delivers its interest rate decision next Thursday. Having hiked in June and kept interest rates unchanged in July, investors are poised for the second interest rate hike of the year.

A 25-basis point lift to 2.5% is already priced so is unlikely to have much of a market impact. More consequential however will be any insight into where the central bank stands on inflation heading into winter, with the potential for hawkish clues paving the way for further tightening ahead. Finnish central bank governor Olli Rehn recently said ‘we must show no complacency’ when it comes to inflation while Central Bank of Ireland governor Gabirel Makhlouf said he felt ‘uneasy’ about inflation, both in recent hawkish interviews with the FT.

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This week, the Eurozone’s annual inflation rate accelerated to 3.3% in August, rising from 2.9% in July, hitting the highest level in nearly three years. This makes September’s rate hike effectively a done deal as inflation moves further above the ECB’s 2% target and the crisis in the Middle East shows little sign of easing. There appears to be no near-term let-up in the inflationary energy price shock triggered by the Iran war. However, the central bank could feasibly keep interest rates at 2.5% for the rest of the year, given the lack of evidence of second-round inflationary effects so far.

Also to watch next week is the ECB’s growth forecasts which are likely to be upgraded after the most recent June forecasts incorporated a significant hit to growth from the Iran war which hasn’t materialised.”