Good morning!
In case you haven't seen it, I updated yesterday's report in the evening to look at results from Walker Greenbank (LON:WGB) - an interesting one, as the company was affected by flooding. The insurance payouts look to have comfortably covered all the costs, including business interruption.
I read a fascinating research note from Peel Hunt yesterday, on retailing. Their analysis on that sector in particular is utterly brilliant. Their argument is that there is no such thing as a retailing sector. There are actually diverse businesses at different stages of life. The established businesses are telling us that consumer confidence is weak, demand is low, etc. Yet the economic data says the opposite - consumers are enjoying good increases in disposable income in fact.
So why the disconnect? It's all down to competition - relatively new entrants are eating the lunch of the established players, if they don't keep up with a strong online offering, and constant innovation with products & services.
So you hardly ever see any retailer comment that their products weren't good enough, and that the competition are doing a better job than themselves! Instead they moan about demand being weak, Brexit causing uncertainty (please! How ridiculous), and of course that good old catch all - the weather hasn't been right.
It's all mostly nonsense. The best retailers will do well, regardless of the weather, the economy, or the competition. (e.g. results from Debenhams (LON:DEB) today (at the time of writing, I hold a long position in this share) weren't bad at all - despite them being old school they're just executing well, which is what's needed - "retail is detail").
With living wage set to eat into operating margins as a constant headwind over the next 4 years, it's vital that retailers manage to eke out positive sales momentum, and strong margins. Mind you, over the long-term, rents are likely to absorb some of the pain, but that's a slow process, due to the archaic 5-year upward-only rent review process.
I think there are some stand-out bargains in the sector right now. Being able to buy high quality businesses which generate tons of cash, on PERs of 10-12 is a rare opportunity, in my view. So I reckon the retail sector is a great place to go looking for bargains right now. Although as…
