How to Pick Retail Share Winners When Stores Reopen
Two weeks into the last step taken in easing the lockdown and it looks like the country has acquired an insatiable appetite to consume pints of beer outside and patiently line up to enter Primark.
While our enthusiasm for outdoor drinking may depend on the weather, investment analysts are busy assessing whether people’s adoration for Primark will continue once a trip to non-essential stores becomes less. a novelty.
Primark’s fortunes matter because the clothing store is an indicator of the health of the country’s main street. With so many purchases being made online during the pandemic, physical stores being inaccessible, its success or whatever in the coming months will show whether shopping habits have changed forever or not.
Request: Queues outside High Street favorite Primark looking for the store’s fashion
“Lockdown has made us hostage to our computers and cellphones – and now we could seek revenge on the streets,” said Danni Hewson, financial analyst at the AJ Bell investment platform.
“But the fact remains that most of us have become even more in love with our online captors than before the outbreak of the pandemic.”
Alasdair McKinnon, director of the Scottish Investment Trust, believes the lockdown “has accelerated the change that is already happening in retail.” He adds: “It’s not necessarily bad, but it has accelerated the restructuring of the sector, which has resulted in the closure of some weaker players, never to reopen.”
As Miss Selfridge, Debenhams, Cath Kidston, Topshop and more have vanished from our high street, McKinnon believes there are opportunities for these stores that remain. As a result, he has increased his trust holdings in retailers that he believes will benefit.
“When the restrictions are fully relaxed, a huge release of pent-up demand is expected,” he says. “It will be distributed around fewer competitors.”
Brokers are also positive on retail stocks, with Liberum issuing a note in recent days suggesting the sector is “now in an upgrade cycle” over one to two years.
In other words, there is action to be taken.
How retail performed
Buying retail stocks, even before the foreclosure was eased, was not a bad investment. The FTSE 350 General Retailers Index provides a good representation of the equity fortunes of UK retailers. It includes Dunelm, Halfords, Next and M&S among its constituents.
Since the start of last year, this index has risen 19 percent, compared with a loss of 2.7 percent for the FTSE 350 index as a whole.
Sam Dickens, portfolio manager at IG Index, the financial spread betting company, said: “The performance of these retail companies has been mixed, where those with a strong online offering have clearly reaped the rewards. . But now the roles can change.
Rory Bateman, director of the Schroder British Opportunities Trust, calls it a “moment of clarity”. He says, “This is when we discover the extent of pandemic fatigue and the degree to which consumers are willing to go out and spend. The pandemic has created serious short-term challenges for the economy, but in doing so, it has tested business models and allowed those with the greatest long-term potential to shine. Investors can take advantage of this. ”
Jason Baggaley, manager of Standard Life Investments Property Income, says that, as always, savvy buyers will choose the best positioned companies rather than focusing on the retail business as a whole. “We’re back to an era of stock picking in retail,” he adds.
Selection of winners in the sector
Investment expert Danni Hewson says retailers who are ready for a hybrid world where we combine shopping online and browsing the high streets will do their best.
Callum Abbot, co-manager of JPMorgan Claverhouse investment trust, rates Next due to its merger between online and high street shopping, which he says will continue to be successful as retail grows after the pandemic. He says, “To survive and thrive as a retailer, having good logistics, good customer data and embracing technology is essential. In this regard, Next is an example of a company which, in our opinion, continues to differentiate itself from its competitors ”.
He adds: “Thanks to the pandemic, Next has consistently exceeded expectations. It continued to generate cash and was one of the few retailers to meet its rental obligations. This should put them in a good place when selecting the best sites for any new store and give it increased leverage when negotiating rent renewals.
The following stocks had a breathtaking year, dropping from just over £ 45 to £ 78 in 12 months.
McKinnon, of the Scottish Investment Trust, has just bought Swedish retailer H&M, believing that the disappearance of other department stores would benefit the fashion store.
He explains: ‘With many big UK brands such as Debenhams, Topshop, Miss Selfridge, Burton and Dorothy Perkins all shifting to exclusively online operations, H&M will have a lot less competition when shoppers return to the streets.
“With better cost control and an online presence, we anticipate that H&M will be a better company coming out of the pandemic. The managers of the Temple Bar investment trust bought out Marks & Spencer on the back of its strong food retail business and its merger with Ocado, meaning it is now benefiting from the growth in shipments of foodstuffs. M&S shares have gone from 91p to 155p in the past year.
Primark is owned by FTSE 100 Associated British Foods. Liberum analysts have upgraded their take on the company to a ‘buy’, with a share price target of £ 27 – shares are currently valued at just over £ 23. Adam Tomlinson of Liberum describes Primark’s online competition as a “manageable threat.”
Investment fund for the basket
Many investment funds are exposed to retail stocks. Jason Hollands, director of wealth manager Tilney, likes AXA Framlington UK Mid Cap. Its top ten holdings include stakes in Dunelm and Pets at Home.
Hollands is also evaluating Jupiter Income, a fund focused on identifying cheap stocks with upside potential. Among its key holdings is retailer Kingfisher, owner of brands such as Screwfix and B&Q. The Fidelity Special Situations investment fund owns stakes in Inchcape, Halfords and Kingfisher – all purchased last year – and also owns a stake in Dixons Carphone.
For those who prefer online retail, Hollands suggests Jupiter UK Mid Cap, which has big stakes in Boohoo and Asos.
RETAIL PARKS ARE BACK IN FAVOR
With social distancing and overcrowded stores, business parks outside the city have experienced an unexpected resurgence.
Callum Bruce, who heads the Ediston Property investment trust, says these parks were “ wrongly written off ” when the pandemic began to hit.
He says: “We believe that the potential of business parks remains underestimated and that demand will pick up soon.”
Retail parks are convenient for several reasons – they are easy to reach by car, so there is no worry of distance on public transport and they are also great for click-and-collect, which has become an increasingly popular way to shop over the past year or so. .
“The business park is well suited to the post-Covid world,” adds Bruce. “Such sites make shopping in a safe and socially remote way, and there is plenty of room for parking.
Richard Williams, analyst at investment trust research firm QuotedData, agrees business parks should thrive.
He likes the Ediston Fund as well as the NewRiver Real Estate Trust. Teodor Dilov, Fund Analyst at Interactive Investor, Wealth Manager, says BMO Commercial Real Estate Investment Trust is a solid way to get to grips with taking over commercial locations out of town.
He adds, “The trust’s share price suffered during the pandemic.
“But with improving rents on properties it owns and the board of directors reintroducing dividend payments, the trust is well positioned to take advantage of the economic recovery.
Some links in this article may be affiliate links. If you click on it, we can earn a small commission. This helps us fund This Is Money and keep it free to use. We do not write articles to promote products. We do not allow any commercial relationship to affect our editorial independence.