Retailers are fighting to stand still, according to Jefferies, which has sliced lumps off the price targets of many in the sector.
Retailers are facing many head-winds this year and next, so it is not surprising the sector has already lost its price/earnings ratio premium, but the broker thinks things are about to get worse, with consumer confidence set to take a fall.
The possibility of the UK leaving the European Union and the concomitant effect on sterling are known issues, but Jefferies thinks there is also a growing unemployment fear risk.
“Our February survey of 3,000 UK consumers shows that over a third expect their finances to improve (a net 18%). So, consumers are still highly confident in their own prospects despite Brexit and economic growth concerns. We think this is overly bullish. The National Living Wage is increasing labour costs at a time of rapid technological advancement which has led to predictions of significant unemployment (in the case of UK Retail the BRC predicts 900k job losses by 2025 - 30% of the industry),” the broker notes, adding that one silver lining could be more favourable weather this year.
The broker has cut its like-for-like (LFL) sales growth estimates for 2016 and 2017 by one to three percentage points.
Several stocks have been downgraded from 'buy' to 'hold', such as Debenhams PLC (LON:DEB), Dunelm PLC (LON:DNLM), and Marks & Spencer (LON:MKS), while Poundland PLC (LON:PLND) has been cut to 'under-perform' from 'buy'.
Fashion firm Next Plc (LON:NXT), meanwhile, is upgraded to 'hold', even though the price target has been cut to 5,100p, reflecting the 15% fall following the recent trading update.
Nomura has initiated coverage of Spire Healthcare Group PLC (LON:SPI) with a 'buy' recommendation and a price target of 405p, some 50p above the current level.
The broker expects the private hospital operator to benefit from the strong structural growth in demand for healthcare services in the UK. Nomura sees the potential for the private sector to increase its share of the UK market as demand from self-pay patients continues to accelerate.
“We note: 1) the ageing population; 2) the increasing prevalence of chronic diseases such as diabetes, heart disease, cancer and the opportunity for the private sector to increase its share in these markets; 3) the recent improvement in UK economic growth should support stronger private medical insurance (PMI) and self-pay demand; and 4) the material funding shortfall in the NHS is likely to result in continued growth in NHS utilisation of private capacity through the e-referral system,” Nomura said.
The private health market also benefits from high barriers to entry.
Elsewhere on the healthcare scene, Citigroup has upgraded drugs leviathan GlaxoSmithKline PLC (LON:GSK) to 'buy' from 'neutral', noting that it is the first time in three years it has advocated buying Glaxo shares.
The drugs pipeline may be modest, but it is credible and undervalued, “especially within oncology (near term epigenetics, longer term IO including cell therapy)”, argues Citi's Andrew Baum.
Research & development and business development leadership is improving from a low historic base, Baum reckons, while the planned appointment of a new chief executive officer in 2017 increases the possibility of a value enhancing divestment/spin of the consumer business and augmented cost reduction.
“Many of our previous concerns are resolving or set to resolve,” Baum believes.
Shore Capital has reiterated its 'buy' recommendation for Aureus Mining Inc (LON:AUE, TSE:AUE), saying the full-year results released this morning were essentially academic, as they have been overtaken by post-period events, namely the commencement of commercial production at Aureus's New Liberty gold mine in Liberia.
“We continue to await an updated mine plan, which is intended to form the basis of discussions with Aureus’s lenders on an appropriate repayment schedule,” said Shore analyst Yuen Low.