Broker snap: Money's too tight too mention for retailers, says Citi

6th Sep 2011 10:32

So gloomy is broker Citigroup about British retailers that it has resorted to quoting a Mancunian soul band to express its feelings on the sector.In a note that takes its title from the Simply Red cover "Money's Too Tight (To Mention)", Citi has lowered its rating on the UK retail sector to "neutral" from "overweight."The downgrade comes after recent data suggested economic growth in the UK will be slower than previously forecast."The UK consumer is fragile but has been supported by private sector employment in 2011," the broker says. "However, a reduction in UK growth and employment forecasts for 2012E has driven a 200bp (basis point) cut to our Household Available Cashflow (HAC) forecast." The HAC is Citi's method of determining how much spare money households have for non-essential purchases, using a range of forecasts including earnings, council tax payments and interest rates.Citi picks on a few retailers in particular, with department store Debenhams, bike and car parts retailer Halfords and food and clothing specialist Marks & Spencer lowered to "hold" from "buy" and Argos and Homebase owner Home Retail and Kesa, the electrical retailer behind Comet, lowered to "sell" from "hold."The broker also looks at a few sub-sectors in detail. Clothing has outperformed other categories in 2011 and favourable commodity price trends should benefit margins in 2012, it said. The electrical sector is weak, while in DIY it expects Home Retail's Homebase to underperform Kingfisher's B&Q.---RG