Broker snap: Forecasts for retailers have 'moved from the nadir'

6th Jun 2012 11:04

Peel Hunt has named its top picks and top risks as part of its review of the general retail sector, saying that while the category has enjoyed a strong start to 2012, the recovery is likely to be a long haul."Outperformance across the retail sector continues to be earnings- driven and stock-specific so our focus remains on the retail winners and strongest recovery candidates. This is all the more pertinent given the substantial changes now taking place in UK retail," the broker said."The impact of the rise in both online sales and a shift towards key destination stores means many retailers are operating at overcapacity. By definition, our structural growth stocks tend to avoid this risk, but we see the majority of stores making material cuts to space by 2020."The broker says that while the pressure on disposable income remain, forecasts have "moved away from the nadir".Peel Hunt rates Dunelm, ASOS, N Brown and Ted Baker as buys and its top picks for growth. Debenhams and Booker are also rated buy as the leading 'self-help' retailers.As for the top picks for recovery, the broker highlights Topps Tiles (buy), noting a stable balance sheet, no risks of internet disintermediation, market share growth and a depressed valuation. Moss Bros (buy) is said to be in the early stages of recovery.In contrast, Halfords has been downgraded from hold to sell to reflects "concerns on forecasts, a lack of organic growth and Halfords' inability to cut lease space." SuperGroup has retained its sell rating due to the sales mix and execution risk. Meanwhile WH Smith is rated a hold due to concerns over the disruptive impact of technology on the High Street.BC