As so often happens on the stock market, homewares retailer Dunelm Group’s (LSE: DNLM) downward share price movement this morning seems at odds with its positive-sounding second quarter trading update.
The firm reported a year-on-year total increase in sales of 13.6% for the first half of its trading year to 30 December, of which total like-for-like sales are 6% higher. That kind of progress over the past six months doesn’t sound to me like a business sinking in some kind of death spiral as many fear could be the way of traditional retailers.
Emerging growth and market share gains
Chairman Andy Harrison was upbeat, saying: “This performance is driving our continued market share gains. We are now up to 169 superstores having successfully opened five in the quarter.”
Expansion rolls on unfettered, and digging into the figures reveals promising growth of almost 37% in the first half for online sales, fuelled by the company’s acquisition of Worldstores a little over a year ago. Online sales have reached 16% of total sales and 18.5% if you include reserve-and-collect customer activity. Mr Harrison said: “We are well on the way to becoming a genuine multi-channel retailer,” and I reckon emerging fast growth within an established set-up such as Dunelm can be an attractive situation.
However, although profit margins were maintained in the first half, Dunelm expects margins to weaken because online Worldstore sales have been less profitable and greater sales were stimulated by seasonal and end-of-season reductions. Maybe this news on margins is causing today’s share price weakness. Yet despite a change in the margin mix, the directors expect profit growth for the full year. Meanwhile, at today’s share price around 675p we can pick up Dunelm shares on a forward price-to-earnings (P/E) ratio below 13 and a forward dividend yield close to 4.4%, which strikes me as reasonable value for what looks like a growing enterprise.
Meanwhile, emerging markets asset manager Ashmore Group (LSE: ASHM) released its second quarter assets under management (AuM) statement this morning, revealing a decent performance over the period to 31 December. AuM lifted $4.5bn due to inflows from investors of $3.6bn and a positive investment performance of $0.9m. Things are moving in the right direction.
Emerging markets are on the rise
Chief executive Mark Coombs reckons that investors are being encouraged to invest in the firm’s funds because emerging market assets have delivered “strong absolute and relative” performance over the past two years. He said competitive currencies have been driving exports leading to an acceleration in economic growth in emerging markets. Looking forward, he said: “The next phase of the cycle should see institutional flows stimulating domestic demand and so provide for continued attractive returns, particularly from local currency-denominated assets including equities.”
Such views enable the firm to offer a positive outlook statement and Ashmore expects another year of outperformance in emerging markets during 2018. We can participate by picking up some of the firm’s shares on a forward P/E ratio a little over 19 for the year to June 2019 and the current share price near 432p also throws up a forward dividend yield around 4%. If emerging markets continue to do well as expected, we could see further progress with the share price and a valuation maintained at these levels.
