Millennial and Gen Z retail is set to outperform when lockdown ends and the high street re-opens, that’s the view of Citigroup analysts.
This will be bad news for Primark owner AB Foods Plc (LON:ABF) and Marks & Spencer Plc (LON:MKS) among others, according to the US bank which has effectively hit reset on its recommendations for a number of London-listed firms.
Citi analysts say there’s only limited liquidity risk in the sector, as all companies have sufficient funds to last until September, which the US bank highlighted is when trading is forecast to normalise.
A spike in activity is expected to follow as the gamut of stores are reopened.
The re-opening of the high street will release pent-up demand, according to Citi, though thereafter the US bank reckons consumer spending will wane and consumption will then be held back by a reality check of lower confidence and higher unemployment.
Amidst these trends, the sector’s recovery is predicted to skew towards youth, and, online retail is expected to strengthen further versus brick-n-mortar stores.
“A V-shaped recovery in spending feels too bullish,” Citi analyst Adam Cochrane said in a note.
“In our view there will be a quicker recovery for younger consumers, but less so for older consumers and online penetration will take a noticeable step up.
“These trends do not favour M&S or Primark.”
Citi today downgrades Primark owner AB Foods Plc (LON:ABF) to ‘neutral’ from ‘buy’, and, a similarly the ‘buy’ rating on Marks & Spencer Plc (LON:MKS) is also cancelled out, to ‘neutral’.
At the same time, Citi also hits reset on its ‘sell’ for Dunelm Group plc (LON:DNLM) which is now rated ‘neutral’ also.
Taking a view across the sector, Citi predicts a 7.5% contraction in sales in the 2020 calendar year, with the potential recovery in 2021 expected to mark 5.9% in sales growth. Overall, according to Citi, this will mean an earnings (per share) downgrade in the region of 24% for this year, and that next year’s earnings (per share) will be about 23% below prior forecasts.