DNLM – Dunelm – market dislikes update

DNLM issued its half-yearly report today, sending the price down 8.5% to 626p as of writing. The shares were down over 10% earlier on, if I recall correctly.

DNLM has been a poor investment for me. I had made a purchase at 955p in Nov 2015. I was attracted to its growth story. However, I bailed out at 774p on 4 Jan 2017, before its trading statement on 12 Jan 2017.

DNLM had issued its Q1 trading update on 6 Oct 2016, showing total revenue falling by 1.8%, and LFL growth decreasing by 3.8%. Given the company’s high rating at the time, I should have bailed out there and then. I was too slothful, though, and decided to hang on.

At the beginning of Jan 2017, I came to the conclusion that I was wrong to have held on, and made a switch to SGP (Supergroup), whose results I liked a lot more. The switch has been a curate’s egg. Although I saved myself from further declines on DNLM, I bought SGP at 1663p. So I am down nearly 9% on the latter.

My point is this, though: the poor reception to the Oct 2016 trading statement should have been taken as a warning of what was to follow. The company reported LFL stores decrease of 3.1% today. Hence the market’s reaction to the news. I claim that today’s worsening of trading conditions, and to some extent the market’s reaction, was more probable than not.

The company has increased its interim dividend by 8.3%, which should provide some comfort that the situation may stabilise. According to Stockopedia, DNLM trades on a PE of 13.6. This is not unreasonable, but is contingent on the fundamentals improving rather than declining.

I am fortunate in having no position in DNLM, and have largely lost interest in it. My feeling is, though, that I dislike the market’s reaction here, and would not be tempted to buy in at this stage. It would be better to wait for the next trading update before taking a long position. I think the share has further to fall, and that you would need a positive update before being bullish on it.

Just my 2 cents, anyway. Stay safe out there.

626p

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About mcturra2000

Computer programmer living in Scotland.
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