Broker snap: Bleak midwinter trading for retailers, predicts Investec

Investec has reiterated its underweight stance on the UK retail sector due to the cautious attitudes of cash-strapped consumers and ahead of an uncertain key trading period at Christmas The broker says that while the UK may be deemed as a safe (or even safer) haven when compared with Eurozone economies, it does not mean that its economic prospects are significantly better, due to its "substantial budget deficit and the government's priority of trying to reduce it"."The combination of very weak consumer confidence and unseasonably warm weather has resulted in a plethora of negative LFL sales trends from retailers, and some of the earliest Christmas profit warnings we can remember," said analysts David Jeary and Bethany Hocking.Furthermore, they highlight that prospects for Christmas are not very bright, "with retailers' hopes resting on consumers delaying spending until December and trading against weaker comparatives given last year's snowfalls."After making forecast reductions on almost half of its coverage universe, the broker downgrades Marks & Spencer, Debenhams and Game from buy to hold, and cuts its rating for KESA Electricals, Mothercare and Howden Joinery from hold to sell. 20 out of the 22 retail stocks that the broker covers have had their target prices lowered.The broker upgrades Next from hold to buy on the back of the group's strong cash generation and the strength of its Directory business. "We would recommend switching from M&S, where capex returns and cash generation appear less certain, and are compounded by potential change in the senior management team."BC