Liberum downgrades Pets at Home, upgrades Supergroup post Brexit

Liberum revisited its stance on UK general retailers on Tuesday in light of the more uncertain outlook following the vote to leave the European Union.

The brokerage said it was more cautious on the generalists, given their UK exposure and in many cases high exposure to US dollar inputs.

On the other hand, it highlighted a preference for specialists who are relatively more defensive and those that still have margin upside, are generating a superior rate of return on capital employed and have strong balance sheets.

Liberum’s key ‘buy’ is Boohoo, which it likes for its positive outlook and strong international growth and Jimmy Choo for its brand and positive forex dynamics.

Other key buys are B&M for its strong market position and high cash generation, and Hotel Chocolat thanks to its strong brand, market position and margin upside

The brokerage upgraded Supergroup to ‘buy’ from ‘hold’ on valuation grounds, noting the stock is trading some 6% below its long-term average.

It cut Card Factory to ‘hold’ from ‘buy’ saying the stock was up with events on valuation and highlighting FX headwinds pressure in outer years.

Liberum downgraded its stance on discount retailer Poundland to ‘sell’ from ‘hold’. It said the shares were underpinned by a potential bid but in the event this does not happen there is 40% downside risk.

Finally, it double downgraded Pets at Home to ‘sell’ from ‘buy’ citing a more volatile top line and margin pressures.

“Reflecting on the prelims and Brexit risks, we believe near-term headwinds have strengthened. FY16 performance suggested that revenues may be more volatile than we had expected and margin expansion has likely been pushed further out.

“We still acknowledge the company's strong market shares, improving multi-channel offering and the longer-term growth opportunity in Services. However, we see further downside risk before the shares make any substantial gains.”

At 0945 BST, Pets shares were down 8.6% to 210.29p, Card Factory was down 5.5% to 305.60p, Supergroup was off 0.9% at 218p and Poundland was down 1.4% to 200p.