UK Retail Trading Updates: Bargains to be had in the New Year Sales?

A string of profit warnings – and Sports Direct International (SPD) chief executive Mike Ashley’s warning that the UK high street risked being ‘smashed’ over the Christmas period after the ‘worst November on record’ – set the tone for investor expectations over the festive period. Was all the pessimism justified? In this week’s article, we take a look at a selection of recent trading updates by high-street retailers and supermarkets, and review broker and tipster outlook in each case.

UK High Street & Supermarket Tip Sentiment (Last 3 Months)

Debenhams (DEB) has been the subject of a great deal of media scrutiny in recent months as it presents a perfect case study of a retailer struggling with rising rates and rents, decreasing consumer confidence, and online competition. The firm’s latest trading statement did little to quell investor fears; UK sales fell by over 6% compared to the same period last year, though digital sales grew by 4.6%. The news hasn’t been taken well, with shares down -10.5% at the time of writing. Broker and tipster sentiment has been predictably negative over the last three months, with no single broker or tipster rating the shares a buy since April last year. going long in the shares could “destroy your wealth in 2019”,  while two brokers – Liberum Capital and Peel Hunt – have both reiterated hold ratings on the shares since the turn of the year.

A quick word on Games Workshop Group (GAW), which followed up an incredible 2017 with strong performance last year: tipster and broker sentiment remains broadly positive going into 2019.   Solid first-half numbers have caused has caused Peel Hunt to upgrade to a buy rating, while Robert Faulkner (The Motley Fool) considers the shares very appealing due to “high quality returns and defensive characteristics, which give some comfort in this market”.

Though early in the year, high street baker Greggs (GRG) has also been a winner so far; shares are up over 15% since the turn of the year as it lifted profit guidance following a “very strong” Christmas trading period. No change from any of the brokers, though: UBS reiterated a buy rating this week, while Shore Capital and Peel Hunt retained their hold ratings. No sitting on the fence when it comes to Marks & Spencer Group (MKS) though, as it continues to divide opinion. Of twenty tips tracked by Stockomendation over the last three months, seven have been positive, and thirteen have been negative. This week’s trading update was disheartening as the retailer struggled with “a very challenging trading period”. Like-for-like sales were down 2.2% over the same period last year, but the bad news appeared to be already priced into the shares as they barely responded (+0.3% at the time of writing). Earlier this week Joe Neighbour (Signalcentre) slapped a sell rating on the shares, while GA Chester (The Motley Fool) also advised potential investors to stay away over the festive period. Broker Jefferies, however, recently offered a contrasting buy recommendation on the shares.

On to the supermarkets, with broker and tipsters broadly positive on both Sainsbury (SBRY) and Morrison Supermarkets (MRW). The former’s trading update this week offered little detail about the potential £11bn Asda merger, but the FT’s Matthew Vincent stressed the growing importance of the deal, as did an analyst at Shore Capital. Like-for-like sales fell 1.1% over the same period last year. Morrison’s on the other hand saw like-for-like sales increase by 3.6%. Broker UBS and Joe Neighbour (Signalcentre) have both issued buy ratings on Sainsbury’s shares in recent days, while Goldman Sachs reiterated a sell recommendation. Miles Costello (The Times) considers Sainsbury’s to be a risky bet, instead preferring Morrison’s as shares have “room to grow, trading is on a roll and the shares are good value”. Patrick Hosking (The Times) is however more cautious on Morrison’s and offers a hold rating, noting that “competition remains fierce, but the yield offers some compensation”.

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Disclaimer: The contents of this article should not be considered financial advice. All information displayed as at 10th January 2019.