Teathers observed: “Sector valuations have been rising significantly as earnings expectations fall without commensurate falls in share prices. This is usually a sign that investors are looking through the earnings cycle to better days ahead.”
However, the broker cautioned: “We are still a little distrustful of this perspective, given our cautious view on consumption in 2010.”
KBC Peel Hunt said enthusiasm for retailers “may be tempered as sales weaken again in the build-up to Easter”, but Halfords, Mothercare and N Brown present opportunities.
Seymour Pierce is also an N Brown fan and maintained its buy advice following a company visit. The broker said the home shopping group is too lowly rated. “The company should continue to see positive earnings momentum through the development of the Simply Be catalogue for younger customers and expansion of home and leisure ranges,” it said.
Food retailers failed to share the generalists’ share price advance as Morrisons fired a new salvo in the price war. Blue Oar said that consumers are being offered fantastic deals but retailers’ margin outlook is uncertain. The broker warned: “We fear for those with the weakest operating margin – ie, Sainsbury’s. Things are definitely hotting up among the food retailers.”
Blacks Leisure was on the receiving end of tentative bid interest on Tuesday. Interested parties are understood to include Lion Capital and tycoon Mike Ashley’s Sports Direct, an existing Blacks shareholder. Numis rates Blacks a hold and reasons: “With the business set to be loss-making for the near future and the strategic difficulties surrounding the Millets chain likely to hamper turnaround progress over the medium term, an offer may prove attractive.” Separately, Sports Direct is expected to update next week
JJB Sports said there had been “a number” of expressions of interest in its fitness clubs and filed a notice of intention to appoint administrators to its lifestyle division – the Original Shoe Company and Qube chains.
Broker Singer said: “Getting rid of this subsidiary would be positive and would leave them with little ongoing liabilities, boosting cash resources and boosting future profitability.”
The future of AIM-listed shoe specialist Stylo hung in the balance as Retail Week went to press. Unless creditors backed a CVA proposal yesterday, the group faced the prospect of administration.