Plunging consumer confidence, signs of slowing trading at bellwether department store group John Lewis and a Carpetright profit warning meant general retailers were left on the shelf by investors.
But some lowly valuations and the predicaments facing particular store groups have created conditions for opportunistic takeover attempts. JD Sports Fashion revealed that it is in the early stages of talks to buy troubled JJB Sports, which separately disclosed details of a £31.5m fundraising and plans to move from the main market to AIM.
Seymour Pierce analyst Freddie George, who rates JD buy and JJB sell, said: “There will be mixed views of any deal. However, we believe there would be significant opportunity for synergies between the two businesses.”
Singer analyst Mark Photiades said a deal was not guaranteed. He rates JD fair value and observed: “Some shareholders may prefer JD to continue with its stated ambitions rather than taking on something altogether more risky.”
Investec this week reiterated its hold recommendation on Home Retail Group. Although it had a better Christmas than feared, the broker is still cautious about prospects.
Analyst David Jeary said: “The driver of investor sentiment remains Argos, either in terms of its recovery potential or its attraction to third parties. The latter need not necessarily be predicated on the former, as a strategic or financial buyer could justify a purchase on the grounds of competitive scale and, or, synergistic benefits.”
Buy Tesco said Shore Capital after a meeting with management, at which Christmas trading was among the topics of discussion. Shore analyst Clive Black said: “While we share Tesco’s disappointment at its festive non-food performance, we welcome the clear nature of the assessment by management. A problem admitted starts the process of a problem solved.”
Broker Jefferies was disappointed by the grocery market data covering the four weeks to January 23. Analyst James Grzinic said like-for-like growth looked under pressure. He said: “Tesco looks to be the main loser, while Morrisons and Sainsbury’s seem to be trading in a similar fashion and Asda leads the pack.”
UBS stuck to its neutral stance on WHSmith after it updated on Christmas performance. Analyst Adam Cochrane said: “WHSmith has again managed to increase gross margin ahead of our expectations and wring out further cost savings to offset weaker like-for-like sales.”
Next week all eyes will be on the BRC’s monthly sales data to measure how the sector is holding up in what has been a tough year so far.