Winners and losers: Dunelm, Frontier Developments, PageGroup

12th January 2022 15:41

by Graeme Evans from interactive investor

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Some big gains have been made today, but former golden stocks such as Frontier Developments have plunged again. Here’s why.

The inclusion of Dunelm (LSE:DNLM) on 2022 best buy lists for growth and income investors looked to be justified today as the homewares retailer reported more impressive trading figures.

Second-quarter revenues were 13% higher at a record £407 million after its fast-growing digital operations were backed up by “particularly encouraging” levels of store trading.

Based on the sales and margin performance for the 13 weeks to Christmas Day, Dunelm now expects half-year profits to be about £140 million, up from £112 million last time.

Shares rose 5% or 71p to 1,411p as Dunelm revealed that full-year profits are on track to be well ahead of current market forecasts for a figure of between £167 million and £190 million.

The FTSE 250-listed stock is now up 11% over the past year but remains short of the highs seen in May and September when it traded above 1,500p. Analysts at Peel Hunt have a price target of 1,750p and said Dunelm was a “business on form”.

The broker recently included Dunelm among its 39 growth stocks for 2022, as well as 27 dividend stocks for income seekers. This is based on expectations for double-digit earnings per share growth and prospects of a 15% yield including special dividends over the next 20 months.

Peel Hunt's retail team said: “Dunelm’s proposition is winning the day, with clear momentum in awareness, active customers, traffic and in-store sales densities.

“Investments in distribution and digital capabilities should continue to drive improvements in how Dunelm comes to market, whether in web functionality or next-day delivery for furniture.”

Dunelm was joined on the FTSE 250 index risers board by Savills (LSE:SVS) after the real estate adviser reported an “extraordinarily strong” finish to 2021 trading. This was particularly the case in the UK, where the prime residential market remained exceptionally strong with an additional boost from a recovery in central London demand.

This means underlying profits for 2021 will be “very significantly” ahead of the upper end of its previous range of expectations, sending shares up 8% or 112p to 1,432p. Management have struck a much more cautious tone at the start of 2022, however, prompting analysts at UBS to leave their price target unchanged at 1,400p.

Elsewhere in the FTSE 250 index, PageGroup (LSE:PAGE) added its name to the list of companies upgrading guidance on the back of strong 2021 trading. The recruitment firm reported record fourth-quarter and full-year performances as the rebuilding of global economies from the pandemic creates a tighter labour market.

With productivity at record levels Page expects that operating profits will be marginally ahead of its previous guidance in the region of £165 million. The company, which paid interim and special dividends worth £100 million to shareholders on 13 October, fell 3p to 631p as shares gave up some of the gains following yesterday's strong update from Robert Walters.

Trustpilot (LSE:TRST) rose 2% or 5.6p to 284.6p as it said 2021 revenues were ahead of expectations at $131 million (£96.3 million) after growth of 24% in constant currency terms.

The performance keeps the shares ahead of their IPO price of 265p last March, although they had been trading as high as 481.8p in September. Peel Hunt has backed a return to that level and is hopeful of seeing upgrades alongside annual results in March.

In the FTSE All-Share, Topps Tiles (LSE:TPT) came under pressure despite an “encouraging” start to its financial year, with like-for-like sales on a two-year basis up 21% in the 13 weeks to 1 January.

It warned that selling prices are expected to increase by a lower percentage than cost prices, meaning gross margins will be moderately lower year-on-year as a result. Shares fell 1p to 63p but analysts at Liberum continue to have a 110p price target.

They said: “The medium to long-term outlook for Topps remains positive, with multiple reasons to assume consumer repair, maintenance and improvement spend still has a lot of legs.

“With its market-leading, omni-channel position and strong balance sheet the group remains well-placed to drive growth.”

On AIM, shares in Frontier Developments (LSE:FDEV) slumped 23% to leave the video gaming firm near to where it was prior to the pandemic boosting investor interest in the sector.

The fall of 414p to 1,358p came as it revealed the release of Warhammer Age of Sigmar will be pushed into the 2024 financial year to ensure game quality.

The delay, which reduces revenues expectations for 2023 to between £130 million to £160 million, emerged alongside the company's interim results for the 2022 financial year.

Revenues were up 33% to £49.1 million following November's release of Jurassic World Evolution 2 and the ongoing performance of its existing game portfolio, which includes Planet Zoo. However, a combination of a lower gross profit margin and game release related marketing costs resulted in slightly lower earnings of £14.1 million.

Analysts at Liberum continue to see considerable value in the Frontier portfolio, noting that shares were already trading at a significant discount to UK peers prior to today's sell-off. The broker has an updated price target of 2,700p.

Elsewhere on AIM, Portmeirion (LSE:PMP) shares jumped 13% or 82p to 702p after reporting a strong Christmas trading period. Despite facing supply chain challenges at the start of the festive season, the homewares business raised its guidance for annual profits to at least £7 million and said 2021 sales of at least £104 million were 12% ahead of its pre-Covid levels in 2019.

Panmure Gordon analyst Sanjay Jha raised his price target from 920p to 1020p following the update. He said: “This outperformance can only be described as blowout execution against every imaginable supply chain disruption.”

These articles are provided for information purposes only. Occasionally, an opinion about whether to buy or sell a specific investment may be provided by third parties. The content is not intended to be a personal recommendation to buy or sell any financial instrument or product, or to adopt any investment strategy as it is not provided based on an assessment of your investing knowledge and experience, your financial situation or your investment objectives. The value of your investments, and the income derived from them, may go down as well as up. You may not get back all the money that you invest. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment adviser.

Full performance can be found on the company or index summary page on the interactive investor website. Simply click on the company's or index name highlighted in the article.

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