Retailers can live with the effects of Tuesday’s emergency Budget: that was the snap judgement of store chiefs and investors alike to the Chancellor’s announcement.
Big retailers’ stocks rose in the immediate aftermath of the statement. Home Retail Group, Marks & Spencer and Next were among the beneficiaries and general retailers outperformed the All-share index over the week.
Ratings agency Fitch said the Budget removed uncertainty for retailers and added: “With the VAT hike delayed until January 4, 2011, it will give retailers and consumers time to plan and adjust their behaviour.” Food groups will not be materially affected, Fitch said.
Arden Partners said: “As long as interest rates stay ultra-low and consumers retain confidence in Government strategy, the V-shaped recovery we have seen may not peter out and Christmas spending may not be decimated.”
Arden believes defensive stocks and retailers with overseas presence, such as Halfords, Kingfisher and Next, have most appeal.
The latest Kantar grocery data showed another subdued performance from Asda. Broker Bernstein noted that there was a greater spread in performance among the big four than was evident in the last period but that growth rates are likely to converge. Bernstein said Tesco’s performance was “a slight disappointment”, apparently resulting from “a weak non-food performance against challenging comparatives from last year”.
Tesco remains Collins Stewart’s top pick in food. The broker said: “We point to the rising returns of the group and international growth prospects, together with a step-up in the UK opening programme from the second quarter onwards, which will help drive the sales performance of the UK division.”
Shore Capital stuck to its hold stance on Sainsbury’s following the grocer’s shuffle of boardroom responsibilities. The broker thought the changes may help Sainsbury’s deliver on its plans to trade more space and increase the proportion of non-food in the sales mix. “Sainsbury’s is a robust business with a clear strategy for growth. The key requirement is to see through those plans,” said Shore.
Ambrian rated Kesa a hold, partly because of the market’s “obsession” with Comet despite the fact that “value creation opportunities lie elsewhere”. Ambrian prefers DSGi - due to report after Retail Week went to press - “which has firmer sales and margin momentum”.
Home shopping group Findel said no material issues had emerged elsewhere in the business following an investigation into unsubstantiated accounting entries at its education division, which reduced profits in the year to April 3, 2009, by £6.4m There is no effect on the profit expectations for the year to April 2010.
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