The coronavirus pandemic recovery is the key driver behind Berenberg analysts' top UK consumer and leisure mid-cap picks for 2022, though cost inflation, government policy, bond yields and supply chain disruption remain important factors in each sub-sector.
Selecting top stocks from a sector coverage of 55 companies, the investment bank's analysts had six top picks, a pair each from the retail, leisure and consumer staples sectors.
In retail, the top picks were Moonpig Group PLC (LSE:MOON) for growth and Pets at Home Group PLC (LSE:PETS) for "GARP", or growth at a reasonable price.
Online greetings cards business Moonpig's shares had a "shaky" first year and Berenberg believes the market "has overreacted to a normalisation of trading conditions post-pandemic – a pattern that was flagged well in advance and does not detract from the long-term growth opportunity and value of the company", with upgraded guidance indicating the shares are "hugely undervalued" at recent levels.
With strong pricing power pet care and PETS a market leader, the company is expected by the analysts to "continue outperforming consensus expectations", with stronger-than-expected market growth, driven by ongoing UK pet population growth and improving margins at the vet business.
In leisure, the top picks are National Express Group PLC (LSE:NEX) as a mid-cap pick and Hollywood Bowl Group PLC (LSE:BOWL) as a small cap.
The former is seen as "a much better business than it is given credit for", with analysts pointing to its internationally diversification, solid track record of growth for five years prior to the pandemic, strong ESG credentials that are strengthening further with the shift to zero emission vehicles, and a proposed deal with Stagecoach that "will generate significant value" for NEX shareholders.
Shares of Hollywood Bowl are "simply too cheap" at 15 times full year forecast earnings, with the company having roughly doubled the pace of its site rollout since the pandemic began, proven "an entirely new concept" with its Puttstars mini-golf brand, as well as delivering 30% like-for-like growth versus 2019 since reopening last May.
Top picks in consumer goods are Britvic PLC (LSE:BVIC) for beverages and Greencore Group PLC (LSE:GNC) for food manufacturing.
Britvic offers "defensive growth" with a high level of visibility of its cost base and "a multitude of levers at its disposal to offset cost pressures", while its track record, brand portfolio and scale "give us confidence it will navigate this difficult environment better than peers".
Dublin-based Greencore, Britain’s biggest maker of sandwiches for all the big supermarkets, has an "attractive risk/return", as the shares trade at around 50% below pre-COVID-19 trading levels, which looks to offer "meaningful upside if 2022 resembles a normal year".