Broker tips: JD Sports, Currys, Dunelm, Johnson Matthey, Warpaint

Berenberg has said it has a positive stance UK consumer stocks heading into 2025 due to depressed valuations and improving macro trends, naming JD Sports, Curry's and Dunelm among the best picks in the sector.

"Two years ago, the FTSE All-Share Retailers index de-rated due to market fears that inflation would erode consumer spending power. In terms of volumes, it did exactly this; however, inflation kept the value of retail sales buoyant, providing leverage over costs for the industry," Berenberg said in a research note on Friday.

In the meantime, average earnings per share from UK-listed retailers have risen 23%. And while price-to-earnings ratios have increased to 11.5x from 9x two years ago, they still remain 13% below the sector's 20-year historical average of 13.3x.

"Valuations across our coverage remain somewhat more depressed.[...] These undemanding valuations, combined with our optimistic outlook for a pick-up in consumer spending over 2025, support our largely positive recommendations across our coverage," the broker said.

Berenberg's top picks for 2025 are B&M, Card Factory, Curry's, Dunelm, JD Sports and Warpaint, stocks which the broker said offer growth, yield or value – or a combination of all three.

"The companies themselves are backed by strong brands that drive clear market-leading positions in their respective verticals, with scale and differentiated business models that provide sustainable, long-term competitive advantages," Berenberg said.

Analysts at Berenberg also lowered their target price on diversified chemicals Johnson Matthey from 1,650.0p to 1,500.0p on Friday following the group's H125 results.

Berenberg said Johnson Matthey’s interim results were a case of "soft results meet bad luck", in its view, with underlying earnings of £156.0m down 13% year-on-year, in line with consensus estimates.

The German bank noted that while the news led to a sell-off of shares that was similar to the group's multi-year lows, it also pointed out that value stocks that miss earnings often fall by similar amounts.

"The platinum group metals services segment, where stabilised prices may have raised investor hopes for some, was the primary driver of the miss, owing to refinery downtime and lower automotive scrap volumes," noted Berenberg, which has a 'hold' rating on the stock.

Shares also reacted poorly to higher-than-expected net debt, which came in at £783.0m versus estimates of £703.0m in consensus, on the back of higher payables as new IT systems enabled suppliers to be paid earlier.

However, Berenberg said it believes that the absence of upside to consensus forecasts and uncertainty around the impact of tariffs on the automotive sector may leave shares treading water in coming months.

RBC Capital Markets reiterated its positive outlook on cosmetics firm Warpaint on Friday, saying it continues to believe the company was well positioned in the market, successfully executing on its growth strategy.

"With strong retail partners on board in the UK/US/EU and continued expansion plans, we believe W7L is well positioned to continue growing ahead of the underlying market (circa 6% compound annual growth rate)," RBC said.

The bank, which reiterated its 685.0p target price on the stock, said it forecasts revenue growing at about 13% CAGR through 2026, combined with 30 basis points/year adjusted EBITDA margin progression.

RBC said that given the shares were currently trading at CY2025E EV/adjusted EBITDA of 14.5x, versus e.l.f at 21.4x, it still sees an opportunity for investors.

"We expect W7L to trade more in-line with its peer multiples as it continues to demonstrate its ability to grow and maintain margins."