Fund managers take stock of the retail sector after festive trading updates
While the Christmas trading period was definitely challenging for the UK’s retailers, the festive period didn’t deliver the Armageddon scenario many commentators and analysts had expected.
But as the dust settles on the frenzied festive selling season, what do some fund managers make of the sector’s performance and how have their perceptions of key stocks altered as a result?
Veteran stock picker Paul Mumford, manager of TM Cavendish AIM Fund (B0JX3Z5) and TM Cavendish Opportunities Fund (B9F9Z98), says ‘I’ve found retail to be a really good opportunity as the whole sector has been whacked back. The one we’ve added to recently is fashion retailer Quiz (QUIZ:AIM).’
Quiz was forced on 11 January to downgrade earnings and revenue guidance for the second time in a matter of months following a tough Christmas. Mumford, with a contrarian style, sees it as an interesting growth company despite the negative news flow.
He is also interested in women’s value retailer Bonmarche (BON) despite the fact its share price collapsed in December after reporting a terrible Black Friday sales week.
The fund manager draws comfort from an online offering that is ‘doing reasonably well’ and added to his position ‘in a small way’ following the profit warning-driven sell-off.
A more recent update saw the share price start to rise again as trading has been less bad than many feared and the retailer didn’t have to downgrade earnings guidance again.
Alasdair McKinnon, manager of The Scottish Investment Trust (SCIN), points out that many retailers didn’t do well in the run-up to Christmas. He adds: ‘However Christmas did arrive, albeit later than people had hoped for. The weaker players are going to go but the survivors, if you can identify them, should be in a good place.’
He remains a fan of Tesco (TSCO) which is benefiting from an increasingly competitive offer for shoppers and is on track to deliver ‘quite an ambitious return to profitability’.
This optimistic view of Britain’s biggest retailer is shared by Stephen Message, a fund manager at Legal & General Investment Management.
‘The roll-out of the “Exclusively at Tesco” range is now virtually complete with a good rate of take-up among customers,’ he says. ‘It appears that progress is being made to address the previously highlighted issues in Thailand. We also take comfort that margin targets have been reaffirmed which should translate into further profit and dividend progression in the medium term.’