Broker snap: Macro uncertainties continue in retail, says Nomura

24th Jan 2012 10:18

Nomura has maintained its neutral view on the 'European General Retail' sector, saying that while retail sales appear doing OK in January, the macroeconomic environment is still uncertain and sector valuations remain uncompelling.The broker draws attention to weekly data provided by John Lewis and the BDO, which suggests that underlying retail sales "may be holding up in January, following strong December sales.""Discounting/promotions remain the driver, especially for big-ticket items, with easy comps helping. Multi-channel retailers also continue to outperform, in our view," Nomura said. Electricals appears to be the key category performance in recent weeks, the broker adds, with solid sales and easy comps.However, Nomura believes that the discretionary spending outlook is still under pressure. "Falling employment, rising unemployment and negative real earnings also suggest that disposable income pressure remains."The broker notes that the 'General Retail' sector has outperformed the market in the year to date, trading on an average 9.6 times earnings, compared with the 9.4 multiple seen in December. "We see no compelling valuation opportunity now, especially in the context of ongoing weakness in the macroeconomic environment and low consumer confidence."Taking a "stock-selective approach", the broker highlights Marks & Spencer, Dixons, Kingfisher and WH Smith in the current environment, all of which are given a buy rating, while Dixons is kept at neutral.BC