Dollarama Inc. offers “compelling growth in volatile times,” Barclays said Tuesday as it upgraded its price target on the dollar-chain company.
Shares within the Montreal-based company are up 10% already this year, as Canadian investors buy up the stock as an alternative to the beleaguered energy and mining sectors.
Jim Durran, analyst at Barclays, said he expects the company to continue to profit from that trend.
“We believe that Dollarama\’s valuation continues to be an above-average benefactor from the drivers to multiple expansion within the consumer sector over the past 5 months (funds flow from energy sector, deterioration in bond yield outlook) because of the compelling simplicity from the drivers behind their above-average growth (strong new store growth and efficiency savings) and their near term sustainability,” he explained.
Mr. Durran increased his target valuation multiple on the company to 23 times forward earnings, from 19 times previously. Consequently, he has a target price of $68 on the stock within the next 12 months, up from $55. Shares closed on Monday at $65.19
In accessory for multiple growth, investors can also potentially look forward to Dollarama returning more cash to them. The organization has steadily been growing its share buybacks, buying 1.7 million shares within the fourth quarter for any total of $97-million (in an average?price of $58.14), and boosting its dividend.
“We expect Dollarama to announce a dividend increase this quarter, consistent with the timing of its annual increases since initiating a dividend in F12,” he explained. “We are forecasting a 12% increase to $0.09/share, implying a yield of 0.7%.”
But he continues to believe Dollarama will favour putting “incremental free cash flow toward investment in the business or buybacks over substantial dividend increases.”