General stores rose over the week versus the All-share index, even edging up on Tuesday when the latest BRC sales data showed a lacklustre performance.
Industry like-for-likes inched up only 0.5% in September, when non-food sales fell year on year. Despite anticipating tough trading conditions, KBC Peel Hunt took a glass-half-full view. “We continue to believe retail valuations are becoming increasingly attractive, suggesting reasons to take a more positive stance on key picks if we do see share price weakness in the run-up to Christmas,” the broker said. Dunelm and Debenhams are among its favoured stocks.
Singer was wary of sector prospects however, and warned: “On balance we believe the upcoming risks and pressures are not adequately factored in, and the spending review alongside sliding house prices remain potential negative catalysts.”
Grocery sales growth has been modest, Kantar research figures showed, but Bernstein took a relaxed view. The broker said: “We expect growth to pick up in the next few periods as food inflation accelerates reflecting faster food commodity inflation and anticipate that faster growth will help improve investor sentiment towards the sector.”
Buy Tesco, recommended Shore Capital. The giant retailer has a strong balance sheet and lots of growth potential. The broker concludes: “In all parts of the Tesco business the dial is moving in the right direction, which makes for the prospect of progressive and sequential growth in profits, earnings and returns, so providing for sustained dividend growth.”
Online food specialist Ocado’s shares were down again, despite a property deal clearing the way for a second distribution centre which will massively extend the company’s reach. Hold, advises Jefferies.
Investec reiterated its buy advice on Burberry following the luxury group’s first-half update revealing underlying sales growth of 17%. Investec noted: “While the temptation must be to lock in some profit after the very strong run Burberry has enjoyed over the past quarter, we continue to find the global growth profile highly attractive.”
Travis Perkins reported that sales at its Wickes DIY chain rose 2.1% in the 39 weeks to October 2, when like-for-likes fell 2.8% in core product categories but rose 11.9% in showroom lines. However in the last 13 weeks big-ticket showed “relatively weaker trends”.
Next Wednesday brings Home Retail’s interims, but all eyes will be on the Government’s Comprehensive Spending Review the same day to assess the implications for retailers.