In a note entitled Arma-geddon Postponed, Numis modified its cautious stance and adopted a “more neutral” view. Despite expecting negative non-food retail sales this year and next, the broker was encouraged by evidence that retail sales have remained surprisingly resilient and action taken by stores to mitigate the downturn. Numis recommends Game, Carpetright, Dunelm and Tesco as key buys, but is bearish on Kingfisher, Sainsbury’s and Morrisons.
Investec conceded that retail newsflow since Christmas has been “relatively benign thus far”, but said it was too early to change its sector stance. The broker said: “Structural issues still remain and with currency-inspired product inflation set to coincide with rising unemployment and pressure on state coffers, we are not yet inclined to overweight retail and retain our neutral stance.”
Tesco was down as the latest TNS data identified Asda as the grocery winner in the 12 weeks to February 22, when the Wal-Mart-owned business notched up record market share of 17.3 per cent. Broker Blue Oar said: “Morrisons showed solid progress but Sainsbury’s and Tesco continue to lose market share.” However, analysts at Bernstein said Tesco’s Discounter brand’s success was creating “self-inflicted deflation” and “the underlying performance at Tesco is very strong indeed”.
Electricals group DSGi’s strategic update revealed that remodelled stores have delivered average gross profits up between 15 and 50 per cent in the six weeks to February 21. The retailer intends to open five more Currys Megastores following the success of the first, which launched in Birmingham last October.
Teathers judged the store improvements impressive, but stuck to its reduce recommendation. The broker warned: “We believe a breach of loan covenants is a real possibility and sense that management is currently in negotiation with the banks to renew the facilities.”
But Pali International upgraded from sell to neutral. It said: “We think investors will give DSGi the benefit of the doubt, particularly as Best Buy is delaying its UK launch – embarrassingly – and as DSGi is gradually getting a grip on its big overseas losses.”
Separately Best Buy’s European joint venture partner, Carphone Warehouse, said it had sold its South African call centre subsidiary for£3.7m.
It was a bad week on AIM. Upscale kitchens specialist Smallbone’s shares were suspended as “challenging” conditions bit. A sale is possible. And e-tailer EBTM applied to follow its operating subsidiaries into administration.
No comments yet