The bank’s analysts said Tuesday that Britain’s decision to break away from the European Union would have negative consequences for some U.K. businesses, including Debenhams and Sports Direct, due to cost and currency pressures. ABF, however, is expected to “outperform,” London South East reported.
“We think ABF has a healthy double-digit EPS [earnings per share] compound annual growth rate with EPS momentum owing to Primark share gains and recent strength in sugar and euro prices,” the analysts said, upgrading the company’s stock. “Our survey work favors Primark which still offers an attractive international rollout story.”
While RBC noted that the general retail sector has “bounced back from a post-Brexit sell-off,” the bank also cautioned that some companies are likely to see like-for-like sales and margin pressure in the second half of the year and in 2017.
To that end, RBC downgraded department store chain Debenhams, citing a more price competitive mid-market clothing sector, in addition to the risk presented by the company sourcing its goods in dollars.
U.K. sporting goods retailer Sports Direct (SPD) is also expected to underperform.
“Our FY18 earnings before interest, tax, depreciation and amortization forecast is still well below consensus (14 percent) given cost and currency pressures and as such we think it will be challenging for SPD to raise prices when consumer disposable incomes are being squeezed,” the analysts said.
But it’s not all doom and gloom. RBC said high-quality merchants and online retailers would do well, particularly Asos, which is “especially well positioned” following recent falls in the pound and the company’s continued investment in logistics.