Retailers generally, like the market, were flat over the week, but that masked some big share price advances and falls.
Entertainment group HMV was the biggest loser, despite agreeing to offload books chain Waterstone’s for £53m. Brokers remained concerned about HMV’s prospects. Seymour Pierce, advising sell, feared the retailer is a “value trap” and noted that the Waterstone’s deal is likely to be earnings-dilutive.
Numis, recommending hold, noted: “Even with £53m from the Waterstone’s disposal, squeezing through the eased covenant tests looks tricky and it looks likely that a refinancing will be required in short order.”
Grocery groups were all flat or down, despite speculation that privately owned Iceland could be a takeover target of Morrisons. Seymour Pierce observed: “We question the logic of paying a premium for the [Iceland] brand if one is only interested in an asset purchase, as we would not expect Morrisons to retain the Iceland fascia.” The broker thought Iceland “may well remain in private hands”.
The latest Kantar food retail sales data indicated that the Wills and Kate effect had only provided temporary respite for supermarkets, Jefferies observed.
The broker said: “Easter and the royal wedding may have added a temporary benefit of perhaps as much as 3%, but we believe demand has already dropped back to pre-celebration levels.”
Investec, which rates M&S a buy, said: “We think work on brand clarity and store cataloguing should support continued increases in average selling prices and availability improvements should continue to compound.”
Espirito Santo, also advising buy, said: “Although there is not much new information to excite, there is a feeling that a lot of work has been going on behind the scenes that will not be visible until later in the year.”
Arden, another buyer, raised its target price from 430p to 445p and said: “Given improving market shares in food and in clothing, we are happy to hold our £778m pre-tax profit for 2011/12 at this stage.”
Panmure Gordon initiated coverage of WHSmith with a buy note. The broker said: “We think that WHSmith can sustain its high returns, despite the growth of ebooks and the challenge of the supermarkets.”
Ahead of Kingfisher’s quarterly update next week, Jefferies issued a buy note. Jefferies said: “We expect excellent performance in both France and Poland, and solid progress in the UK.”
Along with Kingfisher, retailers reporting next week include online star Asos.