Monday, 28 February 2011

Dunelm Group.

Starting to look at Dunelm Group again. I missed out a couple of years since when the newly floated company seemed to have a less than enthusiastic following and wallowed at under 200p. Since then it has increased almost threefold to 550p before falling in an almost straight line to todays 406p (still above the 52 week low of 325p) following a cautious half year statement into what could be a difficult year for retailers.
The company is still largely family owned and until recently was family controlled by the Chief Executive of 15 years, Will Adderly. Mr Adderly has announced that he intends to step aside but will retain a seat on the board. His place will be taken by Nick Wharton, a Dunelm board director since Aug 09 and currently Finance Director at Halfords which itself has undergone a significant renaissance in recent years.

It is very much of the "out of town mill" concept and offers bedding, homewares, and soft furnishings etc. "Simply Value for Money" is its selling point and the company has significant expansion plans to grow the business to 200 stores. Having opened 6 outlets in the current period the company now has 100 superstores and 10 high street outlets.
What I do like is the fact that thus far the company remains debt free and I wonder how far this prudent approach goes. 
The dividend yield is 2.5%, at 8p : 27.1p is covered by earnings 3.39 times and has more than doubled in 3 years. With the family retaining a 59% stake I expect that this will continue to be well supported as long as the company continues to be as well run as it seems to have been.
Profits growth since 2007 has been double digit (2006 - 5%; 2007 - 22%; 2008 - 12%; 2009 - 44%) and is currently forecast to be low double digit for the next couple of years the risks being a dip in consumer spending this year which some analyst suggest might take 5% of revenues.
At 411p this puts it on a forward price to earnings of 13.8 falling to 12.4.

Since flotation in 2006:
- the no of stores has increased by 29% to 106 (82)
- contributing to an increase in turnover of 56% to £492.84m (£315m)
- but inventory has only increased by 11% to £62.58m (£56.35m)
- and profit before tax has doubled to £76m (£38m)
- Return on Capital Employed up from 44.46% to 71.37%.

Impressive numbers.

So there are macro economic short term risks but better to be holding a debt free company offering quality and value (Dormer is one of its product ranges), and maintaining its profit margins. 
The addition of the destination "day out" element is also attractive.

It is a retailer but one to keep an eye on then with a clear view on the longer term.

Dunelm Group @ 398.5p, -13.8p (-3.35%),as at 12:37pm.

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