As pressure continued to bear down on general retail stocks, Nomura and Espirito Santo issued notes assessing prospects.
Both adopted a neutral stance, but Nomura was more bearish. The broker said: “We see further downside risk, with consensus like-for-like sales potentially too high across the sector. Our average current like-for-like for 2011 is -1.9%, and -0.5% for 2012.”
The broker was cautious on Home Retail Group because of fears about how big-ticket categories will perform and said that apparel groups faced a markdown risk despite Next “buying sensibly” and Marks & Spencer driving market share. Tesco and Morrisons are among Nomura’s top picks.
Espirito Santo noted that general retailers had underperformed the market by 4% this year, but said: “Consumers’ expectations and outlook have fallen to such a degree that we feel a lot of bad news has already been accounted for.”
Following Capital Shopping Centres’ results on Wednesday, when the property firm reported rising rent settlements, Singer flagged the issue as a threat to retailers.
The broker said: “The trend for retailers over the last two years has been much more benign than pre-credit crunch, so if they do demand and succeed in driving reviews up, this would clearly be a negative for the sector and main tenants including Marks & Spencer, Debenhams and Next.”
Upscale group Burberry once again won good reviews during London Fashion Week, and Seymour Pierce reiterated its buy advice. The broker believes Burberry can deliver 20% earnings growth for the foreseeable future and said: “It not only has geographical, product mix and leverage opportunities that can be financed by internally generated cash, but it also operates in a market with strong growth credentials.”
Online food specialist Ocado was a loser after founder Tim Steiner sold 6.7% of his holding through a trust. Shore Capital, which rates Ocado a sell, fears that Waitrose’s increasing internet ambitions in Ocado’s heartland pose a competitive threat.
As Tesco chief executive Sir Terry Leahy prepares to hand over the reins to Phil Clarke next week, Shore Capital issued a buy note on the grocer. The broker said: “As ever, there is scope for improvement, fine-tuning the UK and more fundamental decisions in the US. Growth on growth, increasing cash flow and rising returns should lead to rating expansion.”