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Investors tempted into retailer shares as FTSE sags
by Chris Marshall on Sep 12, 2013 at 10:22
Shares in retail groups including Morrison, Argos owner Home Retail and Next made gains on Thursday morning, defying broader weakness on European stock markets, after providing upbeat financial updates.
The retailers’ gains came in spite of equity market losses across Europe, with Britain’s FTSE 100 down by 0.1% to 6,579 as a sharp fall in Eurozone industrial production reminded investors of the fragility of the economic recovery. A 1.5% decline in output more than fully reversed June’s 0.6% increase.
Home Retail (HOME.L) shares led London mid-cap stocks, up 3.3% to 169p, after reporting an 11% rise in sales at Homebase for the 13 weeks to the end of August and a 2.7% rise at Argos, both helped by the sunny weather.
Analysts greeted the update enthusiastically, though cautioned that Homebase was still structurally challenged.
Fraser Ramzan, an analyst at Nomura which recently upgraded Home Retail to a ‘buy’ rating, wrote in a note to clients: ‘We see Home as the most leveraged (and purely exposed) to a UK recovery, and believe that much of the weakness of recent years has been cyclical (eg, significant fall in furniture sales). We believe this lessens some of the pressures on the company and lowers the execution risk on its 5-year Argos strategy.’
Morrison (MRW.L) shares shot up 4% to 309p, topping the FTSE 100, even after the supermarket chain reported a 10% decline in first half profits.
The group did however raise its interim dividend to 3.84p per share and confirmed plans for a dividend policy of at least 10% growth this year.
Cantor’s Mike Dennis noted that Morrison shares were expensive compared to Tesco. The stores are also in the wrong place to benefit from an uneven economic recovery. ‘Their greater exposure to lower income, lower consumer confidence Northern markets will mean a slower recovery in sales,’ commented Dennis, keeping his ‘sell’ rating.
Next (NXT.L) reported an 8.2% first half profit rise, with shares subsequently moving 0.2% higher to £52.05. The clothes retailer said it would raise its interim dividend by 16.1% to 36p. Analysts said there were better investment opportunities elsewhere: ‘We continue to see more leveraged ways to invest in UK consumer recovery and within apparel retail prefer M&S’
Peel Hunt’s John Stevenson added: ‘Another solid set of results, although we see more upside in our key midcap picks such as Dunelm, Halfords & Lookers, all rated Buy’.
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- Ocado Group PLC (OCDO.L)
- Dunelm Group PLC (DNLM.L)
- Next PLC (NXT.L)
- WM Morrison Supermarkets P L C (MRW.L)
- Home Retail Group PLC (HOME.L)