8th Jun 2022 20:11
(Alliance News) - The UK home retail sector is up against some tough headwinds, said German bank Berenberg, but some "attractive medium-term opportunities have materialised".
Consumer confidence in the UK has taken a hit in recent months amid soaring costs, from fuel to mortgage rates.
Gfk's latest UK consumer confidence monitor dropped by two points to minus 40 in May, the lowest score since records began in 1974. In May 2021, the figure stood at just minus 9.
The index measuring the personal financial situation over the last 12 months dropped three points to minus 22 and the major purchase index also dropped by three points, to minus 35.
Despite the country's cost-of-living crisis putting pressure on consumers, Berenberg believes some home furnishings firms will remain supported.
Behind the UK home & living sector are resilient house prices and elevated property transactions over the past 18 months, which should provide a "sustained" tailwind.
"However, we expect do-it-for-me and local trade channels to be more resilient than retail DIY demand, with the latter most exposed to demand normalisation. With around 66% of Wickes's sales exposed to local trade and DIFM, we believe it is most insulated. Within home furnishing, we expect big-ticket items to be most at risk, and therefore believe Dunelm is relatively best insulated," said Berenberg.
Berenberg rates Wickes Group PLC at Buy, and holds the same rating on Dunelm Group PLC.
It also rates B&M European Value Retail SA and DFS Furniture PLC at Buy.
"We remain positive on DFS as while we expect downgrades to FY 2023E estimates, we believe the valuation is pricing in too significant a downgrade and the business should take market share in a more challenging environment, which is positive for the long term...We remain positive on B&M, as while there are risks to guidance, we believe the market is pricing in larger-than-expected downgrades and the valuation remains attractive," said Berenberg.
The broker has Hold ratings on Kingfisher PLC, Made.com Group PLC and Victorian Plumbing Group PLC.
Shares in Wickes rose 2.2% on Wednesday, Dunelm rose 0.5%, B&M closed down 0.1% and DFS fell 1.6%. Kingfisher shares fell 0.7%, Made.com ended down 1.6% and Victorian Plumbing rose 2.4%.
By Lucy Heming; [email protected]
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Wickes Group P.DunelmB&MDfs FurnKingfisherMADE.LVictorian Plumbing