Investor sentiment towards the retail sector is currently poor. Consumer confidence has been dented by negative Brexit rhetoric, low wage growth and higher inflation. Profit warnings from the likes of DFS Furniture (DFS), Dixons Carphone (DC.) and Safestyle UK (SFE:AIM) have driven investors to the exits.

However, in a recent piece of research (18 Sep), stockbroker N+1 Singer points out Dixons’ warning, a major factor behind recent investor jitters, wasn’t due to electricals but rather to mobile phones, where slower replacement could actually boost spending in other categories, and revenue recognition changes.

The broker writes, ‘There are reasons for the mood to lift. We are at record employment. There is evidence of robust trading and share gains from sector leaders with strong growth/self-help strategies which, as hoped, has led to rebounds off lows.’

N+1 Singer continues: ‘Most importantly, there has been £/$ recovery (approaching 15% above January lows) and signs the temporary imported inflation bubble will annualise out within nine
to 12 months.

‘For retailers reliant on Far East sourcing, this has positive margin implications and, more generally, sentiment towards consumption (next year) should also improve, even before any public sector wage u-turns.’

N+1 Singer sees sector buying opportunities as negative assumptions moderate around FX/margins and wages/inflation.

Among the mid caps, the broker favours car parts-to-bicycles seller Halfords (HFD) and plus-size fashion specialist N Brown (BWNG), while also flagging Dunelm (DNLM) ‘for pure growth, and Findel (FDL) and Mothercare (MTC) in the small cap space. (JC)

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