In a note entitled “Catching a falling knife”, Lehman Brothers argued that the worst of store groups’ earnings revisions may be over and, as downgrades hit other business sectors, raised its stance on retail.
The broker compared the situation to that experienced in the 1991 recession, when the retail sector ended up outperforming the market. Lehman said: “This was because earnings estimates for other sectors were falling at a faster rate and although retailers saw earnings downgrades, they were already trading on low multiples of forward earnings.”
Investec also picked up on valuation opportunities, but warned: “It is not yet clear that earnings have troughed in analysts’ forecasts.”
Kingfisher ticked up as the market digested the promotion of B&Q boss Ian Cheshire to group chief executive. Some analysts had hoped for an external appointment, but ING maintained: “While some may be disappointed, we believe his extensive experience will prove invaluable. Continuity, not radical strategic change, is needed at this point.”
However, Pali International wondered whether “well-respected” Cheshire was on the receiving end of a “hospital pass”, given bleak prospects at the flagship UK business.
Woolworths, which expects its retail division to return to profitability this year (see opposite), was the week’s biggest riser following talk that a sale of joint venture 2entertain was being lined up. Management changes at Woolies’ entertainment supply arm poured petrol on the speculative fire.
Department store group Debenhams was up almost 3 per cent over the week as it emerged that Middle East-based retail tycoon Micky Jagtiani had added to his holding. However, Retail Week has learned (page 1) that Jagtiani does not intend to stage a full bid.
JJB Sports gave its blessing to Nike’s takeover of Umbro with a promise to sell its 10 per cent stake. JJB had been the biggest Umbro shareholder not to have come out in favour of the deal, but JJB chairman Roger Lane-Smith said it was in the best interests of the company’s investors.
Carpetright, which reveals third quarter sales on Tuesday, is an “excellent income stock”, said Deutsche Bank, upgrading from hold to buy. The broker acknowledges there is a bear case to be made, but said the price was attractive following a slide after the collapse of founder Lord Harris’s privatisation attempt.
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