HSBC upgrades N Brown after share pullback

N Brown is starting to deliver on its transformation plan and after an undeserved pullback in the shares after this month's interim results, HSBC upgraded the shares to a 'buy' rating from 'hold'.

HSBC, which also upped its target price on the shares to 385p from 330p, noted the clothing retailer had delivered a sustained improvement in its key performance indicators over the last three years, and was beginning to add a recovery in earnings momentum.

First-half results added progress on product sales despite tougher comparatives and while the comparatives get tougher again in the second half, current trading was said to be in line with expectations and the group is "well prepared" for peak trading.

"We see potential in the short-to-medium term to extend recent market share gains via product and customer service-led initiatives including the addition of new third-party brands," said the bank.

New strategic partnerships with Amazon Fashion, Namshi and Debenhams, and potential to expand internationally, add to the group’s long-term growth potential.

While the sector outlook is challenged by cost push inflation in inelastic areas of demand, decline in real wages and downward pressure on discretionary spending trends, N Brown now derives 72% and 80% of total and new customer sales online, and its financial services offer also mitigates the risk associated with wider decline in consumer credit.