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Deutsche Bank upgrades Currys, Kingfisher and Moonpig to 'buy'

13:50, 9th July 2024

[AlexGo - stock.adobe.com]

Deutsche Bank upgraded Currys, Kingfisher and Moonpig on Tuesday to 'buy' from 'hold' as it turned more positive on UK retailers.

The bank said its proprietary UK discretionary spending analysis highlights robust income growth.

"With consumer confidence stepping up during Q2, political certainty and inflation under control, we expect UK discretionary spending will better track earnings growth in the next 12-18 months," it said.

DB said its most preferred UK retail stocks are now skewed towards the more cyclical names and incorporate AO World, B&M, Currys, Kingfisher, M&S, Moonpig and Victorian Plumbing. Its least preferred UK retail stocks are AB Foods, Boohoo and JD Sports.

The bank lifted its price target on Currys to 95p from 80p. It noted that the electricals retailer took significant self-help measures during FY24 to preserve cash, stabilise the balance sheet and protect margins against a backdrop of soft demand.

"From here, we view risk as weighted towards the upside," it said. "Our UK household note...points to robust discretionary income and whilst spend so far this year has lagged income growth, consumer confidence is on an improving trajectory.

"The potential for replacement cycles in electronics, four years on from the Covid surge in demand, sits outside of forecasts and company planning assumptions," it said.

"Currys is now well placed to benefit from improving electricals demand, in our view; retaining tighter investment discipline and carrying a lower cash interest burden, a 1% step-up in like-for-like growth drops through to 13% higher earnings per share versus our base case (we model for 1.5% LFL, 20% EPS growth in FY25e)."

DB said a balance sheet that now looks more comfortable and improving free cash flow generation opens the door to resumption of a dividend.

"With shares on 7.5x Cal-25 price-to-earnings, we view the risk-reward as attractive," it said.

Deutsche upped its price target on Moonpig to 220p from 195p saying it views the stock as an attractive opportunity for gaining exposure to an increasingly confident consumer.

"There's much to like about the business; a market leader commanding a circa 16% share underpinned by a value add proposition that lacks real competitive threat.

"This drops through to EBIT margins of c.20% and strong cash conversion of 80%+ on our estimates. We have outlined our expectations for robust UK discretionary income growth alongside a sequential improvement in consumer confidence. Together, we expect this to translate into improving spending momentum.

"We outline three themes that drive our preference within discretionary retail; online exposure, category dynamics and exposure to a higher income demographic. Moonpig ticks all three."

Deutsche increased its price target on B&Q and Castorama owner Kingfisher to 310p from 245p.


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