25th Mar 2022 14:17
(Alliance News) - Peel Hunt listed Premier Foods PLC and Games Workshop PLC as consumer facing stocks to buy into, as the broker tips the UK inflation rate to race to 10% later this year.
Consumer service stocks are among "inflation winners", Peel said. Among the stocks better prepared to deal with the inflationary storm are food producers and those more exposed to niche hobbies, Games Workshop for example.
"We are facing material inflation across a broad swathe of inputs, from ingredients to energy and labour. In the UK, the rate of inflation will likely top 10% by the autumn, which will put pressure on demand," Peel explained.
The UK inflation figure reached a 20-year high of 6.2% in February, figures on Wednesday showed.
"In general, rising inflationary costs are challenging for the food sector, given that the food retailers use price as a key driver to attract customers. In the current environment, the scale of cost increases (generally over 10%) is so large that the producers have to pass it on. Nonetheless, this will be challenging and there are inevitably delays," analysts at Peel Hunt commented.
Within the food sector, Premier Foods is among those "well-placed to manage the current environment".
The St Albans, England-based food manufacturer's brands have pricing power, Peel said, and the company has a smaller exposure to labour supply issues than other sector peers.
"In addition, we expect demand to be resilient given that they make everyday and affordable products," the broker explained.
Premier Foods owns brands including Ambrosia custard, gravy maker Bisto and Oxo stock cubes.
Hilton Food Group PLC is also a stock less exposed to an inflationary hit. Peel notes the company has "open book contracts", allowing it to be more flexible in passing costs to customers.
Peel added: "The company is overweight on beef/lamb vs pork/chicken. Although beef/lamb are higher priced, they should see lower inflationary impact as there is a material level of grass-feeding."
Games Workshop, also a consumer facing stock but with a markedly different product offering than Premier and Hilton, similarly has the flexibility to pass through price increases.
The Nottingham-based company produces miniature wargames. It is perhaps best-known for the Warhammer franchise.
"Games Workshop has relatively low exposure to higher costs given its high gross margin (around 70%) and ability to increase prices (5% increase from March)," Peel explained.
"The key cost increase over the last year has been freight, which has stabilised in recent months. On the demand side, hobbies tend to be resilient during periods of stress, as was observed during the global financial crisis."
By Eric Cunha; [email protected]
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