Renewed fears of a double-dip recession following austerity measures put the frighteners on the market on Tuesday, when every FTSE 100 stock fell.
Over the week, general retailers underperformed the All-share index but food groups’ decline was limited. There was added excitement in the grocery sector with home shopping specialist Ocado’s confirmation that it would float, raising net proceeds of about £200m.
However, many questions remain about loss-making Ocado’s prospects and valuation. Shore Capital recognises the etailer’s strengths but noted: “The fact remains that Ocado is not a profitable enterprise and, given this fact and the time it will take to deliver material profitability, means that we struggle to argue for a material premium to the store-based food retailers that are profitable.”
Collins Stewart questions the need to float now and argued it would be better for Ocado to make money first. The broker said: “Over the past eight years the business has burnt about £350m of cash and we wonder why the existing shareholders are not willing to invest further to get the business to a breakeven level before flotation.”
Credit Suisse rates electricals group Dixons - which is changing its name back from DSGi- an outperform following last year’s results. The broker said performance was “reassuring in the context of the existing demand environment, highlighting that the transformation plan is starting to gain traction in terms of sales and margin performance.”
Oriel reiterated its buy advice on Dixons and said: “The economic backdrop remains difficult but continued focus on the product offering, store environment, service offering and support and distribution is now working in DSGi’s favour.”
A raft of directors of Dixons’ arch-rival, Comet-owner Kesa, showed their faith in their business with share purchases. Activist investor Knight Vinke also bought into Comet, nudging up its share price.
Buy HMV recommended Arden Partners following Wednesday’s prelims. The broker described HMV’s rating as “derisory” and said: “We have faith in HMV and hope others start to give HMV the benefit of the doubt.” However, Ambrian, advising hold, cut its price target from 75p to 50p “to reflect our continued concern that the core business model is under pressure and the new one is unproven”.
Despite a pick-up in Asos’s growth rate and the appeal of its 1-5-5 strategy to generate £1bn sales in five years from five core markets, Singer moved the etailer from fair value to sell. The broker said: “The shares have been squeezed up 30% beyond a reasonable threshold.”
The highlight of next week will be Marks & Spencer’s first-quarter update, bringing a high street weather check.