Analysts at UBS have taken a more cautious view of the UK consumer, especially those older and on lower income, which they think could affect food and non-food retailers leading it to downgrade its ratings for Marks & Spencer PLC (LON:MKS) and N Brown Group PLC (LON:BWNG).
In a note to clients, the Swiss broker’s analysts said that the most recent UBS Evidence Lab consumer survey shows “a substantial slowdown in spending expectations in the next 12 months on clothing, especially amongst the older and lower income demographic.”
The analysts downgraded their stance for M&S to ‘neutral’ from ‘buy’ and reduced their target price to 340p from 390p.
They concluded: “Despite a respectable FCF yield and an invigorated management team, it seems premature to expect either a rerating or positive earnings momentum in the foreseeable future.”
In early morning trading, M&S shares were down 1.1%, or 3.7p at 331.8p.
Brown down …
In the same note, UBS also downgraded its rating for small cap plus-size clothing retailer N Brown Group PLC (LON: BWNG) to ‘sell’ from ‘neutral’, with a reduced target price of185p, down from 190p after cutting estimates to below consensus.
They said: “N Brown significantly overindexes to these consumers and although we believe N Brown is doing a good job of reinvigorating LFL in its core ‘Power Brands’, with improved website functionality and a more fashionable product offering, we believe this will not offset the macro pressures.”
N Brown shares dropped 3%, or 6.75p to 209.75p.