Hello everyone, it's Paul here.

This is the delayed report from Friday 21 Sept 2018 - apologies for the tardiness.

If you want to read my comments on FCCN results, the only way to do it seems to be to provide a link to comment no.28 in yesterday's report, which is here.


Retailing sector

In this catch-up report, I'll be covering results from 3 retail chains.

Last week, I was asked to give a presentation at a private investment seminar, about the retail sector. A summary of my main points follows below, which may be of interest to the wider audience here;

  • Conditions are terrible - with sales leaking away to online competitors, and costs rising (mainly related to weak sterling, and staffing costs)
  • Many retailers are likely to go bust - but survivors could prosper (last man standing basis). Current over-capacity likely to take years to unwind
  • Consumer confidence is better than people think - Aug 2018 confidence index was negative at -7, but this is due to a -26 score for the perceived general economic picture. Personal financial situation is actually positive, at +8
  • Rents will have to come down drastically, so landlords facing a world of pain, and from CVAs/pre-pack administrations
  • High Streets need to be rejuvenated with new, independent retailers (e.g. the popular Brighton "Lanes" district) - not the same old chain stores, which make towns indistinguishable from each other
  • The best retailers, with the right products, should still do well
  • Strong online offering is essential for larger retailers. 10% of sales online is not enough. Needs to be nearer 50% ideally (e.g. Next)
  • Supermarket shares have done well in last year, but look fully/over-valued now
  • With uncertainty over the UK's Government, and Brexit this might be a good time to avoid retailer shares altogether, instead making a watchlist for things to buy at a discount, on any political shock?
  • Selectively there are big, and sustainable dividend yields available (more below)


My comments on individual retailing shares

(my view as at 19 Sept 2018)

£NXT  - my top pick - half business already online, very high net profit margin, actively managing down retail stores, rent reductions, highly cash generative & paying big divis (and buybacks). Valuation reasonable on PER of 12.

Marks and Spencer (LON:MKS) - recovery underway. Closing 100+ loss-making stores, should boost profits (and closures are triggering a…

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