Broker tips: Haleon, Dunelm

(Sharecast News) - Analysts at Berenberg slightly lowered their target price on consumer health business Haleon from 517p to 510p on Thursday, stating that 2026 should represent "a turning point" in the group's evolution into a consumer-centric business.

Berenberg believes this will unlock a reacceleration of like-for-like earnings growth to 5.5%, ahead of consensus estimates of 4.6%, deliver 60 basis points of adjusted underlying earnings margin expansion and return roughly £1.4bn of cash to shareholders via dividends and buybacks.

"We view risk as tilted to the upside from potential Rx-to-OTC switches and cost savings coming through faster and stronger than expected," said Berenberg, which has a 'buy' rating on the stock. "Haleon's 12-month forward P/E of 19.9x is undemanding for the medium-term growth and cash returns on offer."

The German bank said the downgrades to its FY25-27 earnings per share estimates and price target were mainly driven by refreshed FX expectations.

Shore Capital has reiterated a 'buy' rating on Dunelm, shrugging off recent investors concerns about a weak trading performance by the homeware retailer over Christmas, and highlighting a pick-up in momentum since over the fiscal third quarter.

The broker, which has a target price of 1,175p on the stock, said it has "increased confidence" in its full-year forecasts after Dunelm's interim results last week.

"The most encouraging update which came out of Dunelm's interim results was the news that sales growth in January had improved to c.3-4% following the slower 1.6% growth seen in the second quarter, suggesting the weaker Christmas was more of a blip than the start of a downward trend," Shore Capital said.

Meanwhile, comments about lower cost inflation in the second half should reassure investors that the company's adjusted pre-tax profit guidance of £214m for the 12 months to 27 June, representing 1.4% growth over last year, is achievable despite 1 7.5% drop in profits in the first half.

Shore Capital also sees further opportunities for Dunelm to grow in the medium term, pointing out that the company has just a 7.9% share in a "highly fragmented" home and furniture market and highlighting the success of the company's smaller format stores, which could allow for continued space expansion and further market share gains.

The broker believes the company deserves a premium rating to the wider sector, but noted it currently trades at a price-to-earnings ratio of just 12 after recent weakness.