Dunelm shares were upgraded on Monday at Jefferies despite difficult market conditions ahead and limited valuation upside.

The home furnishings retailer has seen its shares recover 18% so far this year. However, stubborn inflation and the cost-of-living crisis has left consumers questioning how the market will fare in 2023.

Well, Jefferies analyst Andrew Wade upgraded the retailer to Hold from Underperform on Monday. Wade commented on the ‘impressive operational progress’ the business has made under the leadership of Nick Wilkinson, causing Wade to increase the group’s price target to 1,250p from 560p.

However, Wade added that Jefferies expects the retailer’s growth to slow and sees limited valuation upside. This is a fair assessment given the almost 17% drop in first half profits as margins were squeezed and its strong post-pandemic demand wears off.

Dunelm have already commented on the ‘unpredictable’ consumer outlook, with higher interest rates and inflation only likely to further reduce spending in the market. But so far, Dunelm commented on a strong performance in the first half and a strong Winter Sale, leading the group to keep its FY23 profits-before-tax unchanged.

By Jamel Boughedda