Key insights
- Jefferies notes UK retail firms are trading at a discount but are better prepared for inflation than in 2022-23. The Middle East conflict poses headwinds via fuel surcharges and reduced disposable incomes. While some firms are expected to deliver growth, the overall impact on US equities is slightly negative due to global uncertainty and potential for contagion.
Jefferies sees opportunities in UK retail despite Middle East conflict pressures
Investing.com -- Jefferies analysts said Tuesday that UK small and mid-cap retail and consumer companies are trading at about a 15% discount to their long-term average, but remain better positioned to handle potential inflation pressures compared to the 2022-23 period.
The investment bank recently hosted 10 companies in the sector and noted several key observations. Cranswick showed increased resilience to inflationary pressures and confidence in maintaining premium growth in its poultry division ahead of a new facility opening. Greggs expressed a positive outlook, particularly regarding first-half profit extraction. Wickes demonstrated confidence in ongoing market share gains despite an uncertain market backdrop.
The Middle East conflict is expected to create headwinds across the sector, Jefferies said. While direct supply chain disruptions remain limited, additional fuel surcharges from shipping companies are likely. Higher energy, fuel and food costs are set to reduce disposable incomes and may weigh on consumer confidence, the analysts noted.
However, companies are better prepared than during the 2022-23 inflation spike, with broader and longer hedging for energy and other commodities, according to the report. Recent trading updates from companies including Pets at Home, Moonpig, AO World, Asos, THG and Boohoo have consistently met profit expectations.
The sector currently trades at approximately 11 times earnings. Jefferies maintains positive ratings on AO World, Moonpig and Wickes, citing their potential to deliver growth through market share gains.