Deutsche Bank upgrades B&M, downgrades Kingfisher

Deutsche Bank adjusted its ratings on a number of retailers on Friday, as it noted that the European general retail sector ended 2022 on a "surprisingly good" note.

"Whilst 2023 is unlikely to be a great year for consumers, the outlook is getting noticeably less chilly in our view," it said.

The bank upgraded discounter B&M European Value Retail and Marks & Spencer to ‘buy’ from ‘hold’. The price targets were lifted to 580p from 460p and to 210p from 145p, respectively.

Deutsche downgraded B&Q owner Kingfisher, Pets at Home, Asos and Wickes to ‘hold’ from ‘buy’. It cut the Kingfisher price target to 260p from 275p, but lifted its price target on Pets at Home to 355p from 310p. The target price for Asos was upped to 950p from 800p, while the Wickes TP was increased to 160p from 150p.

"In addition to a less bearish view on the consumer outlook the inflationary pressures in cost of goods sold are set to reverse to a tailwind as we look into 2H and into 2024," the bank said.

"Operating cost inflation likely remains the biggest challenge facing the sector but with energy costs falling it is largely wage inflation that has to be managed.

"Given this backdrop, our thesis has evolved to prefer clothing retailers over hardlines, discount over mainstream and physical retail over online."

Spain's Inditex was upgraded to ‘hold’ from ‘sell’ and the price target to €27 from €23. Deutsche kept Zalando at ‘buy’ and hiked the price target to €53 from €33.