Liberum upgrades Card Factory and Superdry after share price weakness

Card Factory and Superdry got a boost on Wednesday as Liberum upgraded both stocks to 'buy' from 'hold' in a note on the general retail sector.

The brokerage said it was bumping up its rating on Card Factory following share price weakness after the stock dropped more than 30% since the company's last update in January.

"Whilst it was disappointing to downgrade numbers in January, this needs to be set in the context of cost headwinds (FX, wages) and ongoing investment into the group's systems and infrastructure.

"Card Factory’s deep vertical integration, established over many years, has created sustainable, long-term competitive advantages. It supports a disruptive value proposition, best-in-class margins, high returns on investment and prolific cash generation, which allows for both disciplined reinvestment and a sector leading, sustainable dividend yield."

As far as Superdry is concerned, Liberum said the 16% drop in the shares since early January represents a good buying opportunity, at least for the short term. It said the group has made good progress under its strategic plan, with Christmas trading revealing total revenue growth of 12.6% year-on-year, although this was a slowdown from the first half.

"This shape continues to bode well for the group's strategy of delivering continued double-digit top line growth, driven by more capital light, higher margin growth channels."

The brokerage has a 2,100p price target on Superdry and a 240p target on Card Factory.

Liberum's top picks remained unchanged: ASOS, B&M, Boohoo, Hotel Chocolat, Joules and Ted Baker.

The brokerage said opportunities exist in a tough market.

"Sector news flow, data points, and recent inclement weather suggest Q1 is proving tough. This is not overly surprising and while being consistent with the cautious outlook statements from Christmas reporting, the divergence between ‘old and new’ retail is widening.

"It is not all doom and gloom however, and there are resilient performances from some high quality companies. Recent share price moves also present opportunities."

At 1550 GMT, Card Factory shares were up 3.1% to 206p while Superdry was 1.8% higher at 1,770p.