European consumer confidence is weak, pushing down expectations for Christmas sales revenue. Fio...
European consumer confidence is weak, pushing down expectations for Christmas sales revenue.
Fiona Stokes at Britannic Asset Management says her portfolio is neutrally positioned in general and food retailers against the FT/S&P Europe ex-UK benchmark.
Within food retailers she is overweight against its benchmark, largely in the form of a holding in Carrefour. She says this stock has a domestic focus and is good value.
This contrasts with companies that have international and US exposure, including Ahold, a Dutch food retailer with exposure to the US. Its US operations, and those of companies with similar exposure, have came under a lot of pressure through intense competition, says Stokes.
'Ahold has made a lot of acquisitions and sometimes it is difficult to see why,' she says. 'People are risk averse this year and Ahold, which has exposure in the US and Latin America and has been buying other companies, does not inspire confidence.'
Carrefour, on the hand, is conservatively managed, which makes it a more attractive stock, she says.
The company has not been without its problems, however, and it is only now starting to recover after a difficult acquisition of a competitor.
According to Stokes, integration of the two businesses took longer than expected, which hurt share price performance.
As with the food retailers, Stokes holds just one continental European stock within the general retailing sector, Hermes & Moritz. This company has been performing well even within the difficult German market, she says. 'The German consumer is known for buying own brand and discount labels,' she says. Hermes & Moritz's sales are driven by getting fashion trends correct and it has been doing this so far and is even gaining market share.
Overall, she says, Britannic is more bearish on the food retailers as this sector experienced high growth rates that will not happen again.
The Christmas period also has less impact on food retailers than the general retailers, she adds. However what expectations there were for this Christmas have been dampened as consumer confidence is weak across Europe. Germany has the weakest consumer with the Irish and Spanish consumers perceived as the strongest, she says.
Alistair Duffy, manager of the Aegon European fund, says one advance sign that things are picking up can be the advertising sector.
If companies are increasing their advertising spend, then this can signal a recovery. He believes there have been signs of a tentative increase in advertising spend in the US ' which is typically the first to recover ' but not yet strong enough to call a bottom to the market.
According to Duffy, Food retailers will not benefit much from a recovery and instead general retailers, he says, are in a much better position to cap- ture any increased consumer spending in Europe.
As a whole retailers, including both general and food retailers, make up around 3% of the Aegon European portfolio he says. Duffy holds four core non-food retailers: Hermes & Moritz, German retailer Metro, Spanish Indigex and French PPR.
German consumer remains weak.
Sentiment on Christmas period weak.
Investors remain risk averse.
Tentative recovery in ad spending in US.
General retailers expect busy christmas period.
Good valuations can be found.
Consider risk capacity
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