Home comforts with these FTSE 350 stocks?

An attractive opportunity to buy a quality compounder has been flagged in a City bank’s analysis  of homewares and DIY stocks Kingfisher (LSE:KGF), Dunelm Group (LSE:DNLM), Wickes Group (LSE:WIX) and Victorian Plumbing Group (LSE:VIC).

All apart from the AIM-listed Victorian Plumbing have fallen sharply in value since September, despite data on housing transactions turning more positive over recent weeks.

Deutsche Numis believes B&Q owner Kingfisher and homewares and furniture business Dunelm are now attractively valued, while it has Hold ratings on Wickes and Victorian Plumbing.

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Its overall view of the £40 billion a year home-related market is that the more cyclical DIY segment remains in decline three years on from the 2020-21 sales surge.

The bank said: “A near-term recovery remains reliant on improved housing transactions, spending power and confidence; the housing market appears to be picking up, but we need further evidence of sustained confidence in our view.”

Homewares has proved more resilient historically, with about 50% of Dunelm sales relating to necessary household items such as kitchenware and bedding.

This factor helps to underpin the bank’s support for the FTSE 250 listed company, which has continued to grow market share. It also trades with an attractive margin profile, high return on capital and track record of cash returns.

The 1,300p target price implies a 15% upside on a 12-month basis, although the bank also views the stock as one for the longer term.

It said: “With shares 10% off the summer highs, we see an attractive buying opportunity for a quality compounding business.

“The proposition is winning market share and the model is increasingly cash generative. Management has a track record of returning cash, which has been a meaningful contributor to total shareholder return over time.”

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It is also Buy rated on Kingfisher, although the B&Q, Screwfix and Castorama firm has a tougher route to recovery than the bank anticipated when it upgraded the FTSE 100 stock in July.

French consumer confidence has weakened and the UK Budget means unexpected cost increases, but the 2025 financial year should still be the trough in earnings.

The bank said: “The short-term outlook for the consumer and the DIY segment is unhelpful. However, management has kept a good grip on costs, cash flow remains robust and we believe they are largely holding market share.”

A target price of 340p compares with the current level of 255p after a year in which shares rose between 210p in February and 331p in September.

This week’s report added: “We accept that Kingfisher will have to provide some evidence of the earnings momentum stabilising and then recovering for 2026, which makes this a longer-term rather than shorter-term call on the market.”

The bank stays Hold-rated on Wickes with a target price of 150p.

It regards the DIY business as efficient and well run, but wage costs present a large headwind and improved big-ticket spend is now needed to drive earning momentum.

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Victorian Plumbing shares have performed strongly this year, rising 17% after the online bathroom products firm enjoyed industry-leading growth and took steps to remove capacity constraints through the opening of a new distribution centre in Leyland, Lancashire.

However, with category expansion still in the early stages and much of the future growth plans reflected in the valuation, the bank sees balanced risk-reward at the current price of 107p.