There may be some festive cheer for the UK's retail sector this Christmas after all following the Brexit vote, reckons Liberum, which has outlined its top company picks.
The result on June 23 has impacted retail firms in three main ways - foreign exchange movements, consumer confidence, and company share prices, the broker notes.
Opportunity for investors
There are short term positives and the fact that many firms' share prices remain depressed mean there are opportunities for investors, says the broker.
It highlights B&M, Dixons Carphone (LON:DC.), Hotel Chocolat (LON:HOTC), Jimmy Choo (LON:CHOO), Joules (LON:JOUL), Majestic Wine (LON:WINE), SuperGroup (LON:SGP) and Ted Baker (LON:TED) as top picks. All are rated as 'buy'
Reasons for Liberum's optimism include that the weak pound means Britons are more likely to stay at home and not travel abroad.
By the same token, it also means foreign visitors are more likely to come to the UK to take advantage of the favourable exchange rate and hit the shops.
London captures over 50% of visitor spend and clothing is the most popular shopping category, also highlights analyst Adam Tomlinson
"We would therefore expect retailers with exposure to these to benefit, as well as those in travel locations."
Consumer confidence more resilient than feared
Despite the much touted economic fears ahead of the referendum, consumer confidence has been more resilient than feared, notes the analyst, with significantly, household demand forecast to be the fastest growing component of GDP (gross domestic product) in 2016.
Tomlinson adds that with inflation growth set to rise on the horizon in 2017, shoppers may be pulling forward their spending now and over the festive period.
By way of a sector example, fashion brand Jimmy Choo plc has traded strongly into the second half and takes positive momentum into the Christmas trading period.
Its latest update was qualitative only but indicated a return to positive LFL (like-for-like) sales growth with improved retail trading across all regions, notes Liberum, which has lifted its target on the stock to 155p from 135p.
Dixons Carphone market share expected to grow
Dixons Carphone, notes the broker, commands more than 25% market share in its core geographies, which is well over double that of its rivals, and is gaining the most share, even compared to Amazon (NASDAQ:AMZN).
Liberum expects Dixons' free cash flow to double in 2018, yielding 6.2% as capital expenditure declines and exceptional costs drop-out. The broker targets 470p.
Meanwhile, Hotel Chocolat It is one of the most advocated British brands (Bain, 2012), giving it appeal to both UK residents and international shoppers. Its sales are driven by both calendar events (Christmas, Easter, Valentine’s Day), as well as everyday special occasions. The target price is 295p.
Joules (target price 235p), is well placed to benefit from staycation due to its rural and seaside bias. Not only does this provide a smoothing of revenues profile compared to other retailers, but it could drive an incrementally strong performance over summer 2017.
Majestic Wine maturing into international business
Majestic Wine, target price 380p, offers affordable bottles over the festive period, suggests the broker, which adds it is one year into its three-year transformation from a single country, single channel retailer into an international, multi-channel, multi proposition business.
Ted Baker's appeal lies in multiple routes to market via retail, wholesale and licensing, increasingly complemented by online, added Liberum, targeting 3,100p.
On SuperGroup, the broker reckons that brand strength and European positioning will ensure familiarity for overseas visitors.
"Strength in outerwear should support domestic sales momentum over the Christmas period," it adds. It rates the clothing retailer a 'buy' targeting 1,800p.