Broker snap: Nomura picks four retailers

24th Nov 2009 11:24

Nomura Securities has been casting an eye over the general retail sector where it reckons almost all data indicators point to an improvement, including prospects for electricals and high price items.The broker has picked four stocks it likes in the sector: Marks & Spencer, KESA Electricals, Home Retail Group and HMV.Now that the question of succession at the top of Marks & Spencer (M&S) has been settled, things are looking brighter for the company, which is set to 'benefit from weaker comps [comparative figures], market share gains, reduced sales at markdown levels, and innovation,' Nomura analyst Christopher Walker believes.Walker likes M&S's decision to introduce branded foods to its product lines and expect this will 'allow peak footfall to experience the new offer.'Comet stores owner KESA gets the thumbs-up on the back of a 'strong improvement in the trading environment for electricals, high operating leverage, easy comps in both LFL [like for like] and gross margin (-300bp in Q3) [3 percentage points in the third quarter], recent improvement in French electrical data, stock underperformance relative to the sector and relative discount to the sector on an EV/EBITDA [enterprise value/earnings before interest, tax, depreciation and amortisation] basis.'Argos and Homebase owner Home Retail is also set to go up against weak figures from a year ago, and should benefit from an 'improvement in market environment for toys, electricals and furniture, stock underperformance relative to the market and relative valuation discount to the sector,' Nomura reckons. HMV, which as well as operating the eponymous stores also owns bookseller Waterstones, should do well if the trend seen in October for increased book sales endures. The removal of competitors such as Woolworth and Zavvi from the High Street should enable HMV to improve market share this Christmas.'Although some expectations are factored in to earnings, the attractive valuation and 6.5% dividend yield gives upside to the stock through peak trading, in our view,' Walker believes.