Shop stocks were out of favour in the wake of a profit warning from Topps Tiles, with bearish notes on some of the sector’s biggest names and general heebie-jeebies about trading.
Marks & Spencer was one of the week’s biggest losers as UBS cut its full-year forecast by 3% to £695m to reflect lower first-half expectations. The broker said: “At this stage we maintain our expected second-half recovery but there is potential scope for this to be reviewed if consumer confidence and pressure on disposable income does not improve.”
Tesco has decided to sell its Japanese business and pull out of the country, which is its smallest international business. Espirito Santo was pleased by the decision and said: “Proceeds aside, this should be taken positively as new chief executive Philip Clarke is sticking to his ‘no sacred cow’ mantra and making pragmatic decisions while addressing the key investor concern of deteriorating returns on capital in the international business.”
Broker Shore Capital resumed its questioning of Ocado’s merits with a scathing sell note. It argued that Ocado should mothball plans for a second customer fulfilment centre until it has proved it has a viable business with its first.
Ocado, which floated last year, has lost almost half of its value in the last three months – comparable with embattled retailers such as HMV. Shore said Ocado’s valuation was now “easing back to some form of relationship with financial planet Earth”.
WHSmith pleased the City with a new £50m share buy-back programme. Investec, advising buy, said: “This shows confidence in its ongoing cash-generating capabilities.” Seymour Pierce, also a buyer, said the retailer’s valuation does not reflect its strength of management and defensive qualities.
Sports Direct, which updates next week, was popular among brokers. Singer, advising buy, said the retailer was an “increasingly investable proposition” and raised its price target to 232p from 190p.
The broker said: “After a truly awful public markets debut in 2007, Sports Direct is finally becoming the business that it aspired to be at the time of the IPO, demonstrating good growth and much-needed improvements to the quality of earnings and disclosure.”
Oriel, another buyer, said Sports Direct’s shares were cheap at present and argued: “Sports Direct is showing pleasing signs of Reading the customer well as we approach the crucial Olympic year and, with the potential for this strong management team to diversify in the UK and overseas, we think the current valuation offers plenty of upside.”