A raft of results generally in line with expectations and signs of corporate activity returning to the sector helped general retailers keep pace with the index, but food groups were the week’s stars.
The grocery giants’ recent updates have shown none have taken their foot off the gas and, in Tesco’s case, the pedal is once again pressed to the floor. As Christmas approaches, all are jostling for position and have grabbed column inches with high-profile promotions.
Sainsbury’s share price led the food pack. Following last week’s interims, Charles Stanley rates the grocer an accumulate. The broker is sceptical about the chances of another Qatari bid but likes the business. “Like-for-like sales growth is forecast to slow in the near term as food price inflation falls towards zero, but we expect the group to continue to deliver solid growth in underlying earnings,” it said.
Maternity retailer Mothercare issued interims on Wednesday, showing an 11.1% rise in underlying group profit and detailing plans to exploit the weak property market to improve its portfolio.
Broker Singer, rating the retailer fair value, noted: “As a consequence of this new strategic plan we would expect market forecasts to move
up towards our numbers next year (£47.5m) from consensus of £44.8m currently.”
Investec, advising hold, said: “Phase two of the UK property rationalisation should yield £10m in further cost savings and drive forecast upgrades. We think the rating is fully anticipating these.”
DIY giant Kingfisher, owner of B&Q, issues third-quarter numbers at the start of next month. UBS expects a 24% retail profit increase to £218m and rates Kingfisher buy. The broker said: “We forecast third-quarter like-for-likes of 5% at B&Q, helped by weak comparatives, top stock clearance in Warehouse and operational improvements.”
Also in the home enhancement sector, Topps Tiles is rated a buy by KBC Peel Hunt ahead of preliminary results on Tuesday. The broker said: “We forecast pre-tax profits of £13.9m and, in keeping with recent sector news, expect current trade to have stabilised while also benefiting from weak comparatives. With EBIT margins well below peak, we see more upside to come.”
Citi last week raised its target price for DSGi from 29p to 45p. The Currys and PC World owner posts first-half results next Thursday. Citi is encouraged by industry data indicating the electricals category is improving and raised its full-year profit forecast by 51% to £68m.
Citi also upgraded its profit forecast and share price target for Marks & Spencer, based on a combination of the retailer’s latest update and improving non-food sector like-for-likes. The broker increased its target price from 400p to 420p and profit forecast by 6% to £635m.