Liberum chops target prices after retail updates

Liberum cut its target prices for several UK retail stocks on Friday following the release of Christmas trading updates this week.

The broker said Joules and Ted Baker were the standout performers in the sector.

"Next provides a glimpse that a diverse offering resonates well but keeping a close eye on proposition is crucial," it said, adding that the traditional retailers are much more mixed, with Card Factory, Halfords, Debenhams and Marks & Spencer all disappointing on 'Super Thursday'.

Liberum chopped its price target on sell-rated M&S to 225p from 250p, noting that both clothing and home are structurally challenged, with no catalyst visible.

"The group has hired some impressive no-executive directors and a highly regarded chairman but lack of news flow on the strategic direction leads us to expect continued negative LFLs in both divisions for the foreseeable future," it said.

The broker cut Card Factory's price target to 175p from 195p following its third-quarter update, which showed a continuation of tough trading.

"Concerns around market saturation and the cannibalisation of Card's existing store sales as the roll-out continues are likely to resurface as investors and analysts look for reasons as to why LFLs have slowed," it said.

Liberum rates Card Factory at 'hold'.

It halved its price target for hold-rated Debenhams to 5p, pointing out that the festive period brought little relief from ongoing pressures.

"UK LFL growth at -6.2% was weaker than we had expected, and the volatile, promotional market meant the group had to respond, bringing further margin pressure," it said, adding that earnings visibility over the medium-term remains very low.

The price target for buy-rated B&M European Value Retail was cut to 450p from 475p. It said the shares offer exposure to a self-funded roll-out and an integrated, high growth, cash generative business at an attractive valuation versus historic levels. However, there are risks, one of which is the fact that LFLs are tending lower than the broker expected.

Finally, Liberum reduced its price target on buy-rated Halfords to 325p from 380p as it said the material downgrades to FY19-20 profit guidance were disappointing.

"Both the weather impacts and a weaker consumer environment held back LFLs, which we believe offset some early underlying progress from the strategic initiatives. However, the current valuation is cheap and a dividend yield of more than 8% is attractive compensation, in our view, while waiting for FY21E when sustainable profit growth should resume."