In an insightful note entitled ‘Good shop, bad shop’, Peel Hunt’s retail gurus Jonathan Pritchard and John Stevenson write : ‘We continue to believe that the retail sector’s lot is not as unhappy as the market believes.’
Christmas won’t be a vintage one, however, according to the analysts. ‘Conditions are fine for the stronger propositions, but won’t prop up the lesser fascias,’ they say.
But the City pair certainly not believe it is all doom and gloom across the sector. The analysts say that retailers with whcih they have spoken suggest that Black Friday was solid enough, with tactics to smooth demand over the week working well.
The analysts’ view is ‘that this will be a satisfactory Christmas, but there may well be polarity in the performances of the winners and the losers. Those with the required strength of brand, proximity to customers and multi-channel approach should see strong gross profit growth, but it could be bloody elsewhere.’
FESTIVE WINNERS?
Accordingly, the broker’s ‘buy’ list of retail stocks is topped by:
B&M EUROPEAN VALUE RETAIL
Bullish on the general merchandise discounter with a 485p price target versus today’s 409.9p market price, Peel Hunt’s ‘recent store visits certainly suggest that B&M (BME) is going to make the most of the festive season with visually more space being devoted to seasonal products. Here lies one of the secrets of B&M’s success: it has improved the way it trades the seasons, which is placing more and more pressure on the category killers (see Toys R Us).’
Though the broker doesn’t believe the consumer is in disarray, ‘we do think incomes are squeezed and there will be trading down to the discounters. Only Home Bargains and B&M are adding space in that sector, so the relative position gets stronger still, and the problems at Poundland can’t be bad news either.’
Other ‘buys’ include premium memory foam mattress business Eve Sleep (EVE:AIM) and convenience chain McColl’s Retail (MCLS), not to mention:
SUPERGROUP
Peel Hunt’s price target for Superdry brand owner SuperGroup (SGP) has been raised from £21 to £23. ‘Our Christmas week store visits suggest that SuperGroup has enjoyed a solid festive period. In particular, we note that a number of new lines in coats and outerwear have sold out, which bodes well,’ writes the broker.
JOULES
Having reported 18.2% first half sales growth to the end of November, British lifestyle brand Joules (JOUL:AIM) could deliver forecast upgrades alongside January’s interim results, ‘assuming momentum is maintained for a successful Christmas campaign’.
BOOHOO.COM
Global multi-brand online growth story Boohoo.com (BOO:AIM) ‘has successfully navigated Black Friday and is now clearing any remaining seasonal lines’ and is a buy with a 300p price target.
‘The potential for upside comes from PrettyLittleThing and Nasty Gal, which is where we see sales outperforming and possibilities of upgrades’, enthuses Peel Hunt.
YULETIDE LOSERS?
However, Pritchard and Stevenson fear most for:
DEBENHAMS
Having pared its price target on the embattled department store to 45p, Peel Hunt sees ‘no reason to hold Debenhams (DEB) shares on a medium-term view’, with the ‘ongoing risk to earnings and required investment to launch any turnaround plan’ meaning the shares are ‘a risky proposition. That said, if Christmas proves to be anything better than disastrous, the shares may well recover some of the recent losses in the New Year.’
MOTHERCARE
Stevenson and Pritchard have a ‘hold’ rating on Mothercare (MTC), the struggling babywear specialist. ‘Following the latest profit warning, it’s clear that Mothercare’s fortunes are still at risk in the short term. While other retailers had seen a pick-up in trade in the build up to peak, this has largely passed Mothercare by as a non-Christmas focused store.'
