Deutsche Bank downgrades Next, Halfords, Debenhams

(ShareCast News) - Deutsche Bank cut its stance on a number of UK retailers as it said demand is likely to soften in 2017."Retail stocks are typically early-cycle but there are risks a prolonged downturn means many could be value traps, particularly as the sector is typically showing average rather than extreme valuations."We like growth retailers and those with self-help, whilst we are a little wary of apparel retailers and find online stocks generally too expensive."Its tops picks are Primark-owner Associated British Foods, B&M and Dixons Carphone, but the bank downgraded its recommendations on Next, Debenhams and Halfords.It cut Next to 'hold' from ' buy', taking the price target down to 5,300p from 5,950p, saying credit income is unlikely to remain a tailwind while scope for cost control is likely limited.Still, DB said cash flow should remain strong as capex should moderate, while the strong balance sheet allows the entire free cash flow yield of around 8.4% to be returned via regular dividends and buybacks.Deutsche downgraded Halfords to 'sell' from 'hold', cutting the price target to 310p from 320p. It said that while the company's range should prove fairly resilient in a soft UK consumer environment this year, the weak pound has already started to precipitate cautious comments on gross margins.In addition, it pointed out that the group has relatively high operating leverage and is unlikely to have significant scope for cost-savings as it continues to build its customer- and service-centric capabilities."The acquisition of direct/ online specialists Tredz and Wheelies should accelerate digital development but not distract investors from core challenges."DB cut Debenhams to 'sell' from 'hold' and trimmed the price target to 52p from 60p.The bank highlighted five reasons for its sell rating. It said that after the retailer's efforts to reduce discounting, full price sales are now underperforming discount sales for the first time since 2014.It also noted that in the last 10 years, the company has not grown store-only like-for-like sales and there is a chance Marks & Spencer will begin to take its share.DB pointed out that Debenhams' UK store estate is maturing, with no openings scheduled for this year. It also argued that it is likely to remain difficult for the company to grow profits as cost inflation persists.Finally, it said Debenhams has significant long-lease exposure which is set to come on balance sheet in FY Aug-20.At 0930 GMT, Next shares were down 4.2% to 4,775p, Halfords was down 5.4% to 345.70p and Debenhams was off 2.2% to 56.02p.