The whole stores sector – grocers and general merchandisers – was up last week and beat the All Share index, although general retailers continued to underperform against last year.
The rise was driven partly by optimism about particular companies, such as Next (see opposite), as a raft of big retailers prepare to update over the next month. Hopes that better weather might get fashion retailers’ autumn/winter season off to a good start also lifted sentiment.
Electricals retailer DSGi was scheduled to issue a trading statement as Retail Week went to press. Ahead of the update, Panmure Gordon reiterated its hold advice. The broker said: “DSGi is attractively valued, with good yield support and the prospect of the interest rate cycle peaking may revive interest in cyclical exposure.
“However, we remain cautious, given the deflationary pressures in its markets and the likely slowdown in consumer spending in the months ahead.”
The Sainsbury’s bid saga dragged on and brokers continued to try to judge the likelihood of a sale going ahead. Numis cut its target price from 700p to 680p, but said: “There is a higher probability of this deal crystallising than falling apart.” Seymour Pierce, however, believes the odds of a takeover were 55:45 against. Advising hold, the broker said: “The shares are sitting in the middle of the range of 450p (bid fails) to 600p (bid happens) and we think that it is too risky to call.”
JP Morgan initiated coverage of Debenhams with an underweight stance. Debenhams’ shops are underinvested in and the business is overvalued, argued the broker. The department store group will issue an update on September 18, which JP Morgan expects to lead to more forecasts for this year and next being downgraded.
Liberty, the AIM-listed department store, is expected to report interims in a fortnight. Potential buyers, including Baugur, are said to be eyeing the iconic store.
There has been some speculation that former House of Fraser chief executive John Coleman was interested in leading a bid, but that is understood to be incorrect.