- Analysing US, EU and UK markets Edison’s Consumer Watch report finds more than 100 companies available at significant discounts to fundamental valuations
- Household names including Fevertree, Watches of Switzerland, Loungers and Hostelworld make it on to the list
- Findings echo recent Edison report into IPOs listed in 2020 – 2021
International equity research and investor relations consultancy Edison Group has released its widely circulated quarterly report into the state of the consumer sector in the UK, US, and EU.
The report identifies more than 100 companies which appear to fully discount an economic downturn. As consensus also expects each business to generate positive free cash flow (FCF) across 2022 and 2023, the report concludes that investors may now decide they offer good value.
The list of potentially attractive equities includes Fevertree, Watches of Switzerland, Loungers and Hostelworld within the UK. Savencia, SMCP, and VRG are among the featured European stocks while Century Communities, Dave & Buster’s Entertainment and LoveSac are named in the US.
The report’s identification of value echoes the finding of Edison’s recent ‘IPO Apocalypse’ note. The research concludes that a toxic cocktail of market sentiment, slowing growth, rising inflation and belatedly hawkish central banks has left 84% of IPOs trading below their issue price. And those fundamental valuations suggested investors may uncover a swathe of valuable opportunities.
However, the Consumer Watch report also cautions profit expectations for could yet be too optimistic and that consumer sector stocks may be vulnerable to further downgrades. Consensus estimates still suggest year-on-year operating profit growth of 18% for North America, 8% for Continental Europe and 20% for the UK consumer sectors in 2023.
Meanwhile, the report notes that wholesale rapid recovery in sentiment towards the consumer sector is unlikely, given continuing profit estimate fears and central banks restricting the money supply to dampen inflation back to target.
In the UK, Internet & direct marketing retail stocks were the weakest preforming sub-sector. Edison believes this was a rational response by investors, given forecasts for greater losses in aggregate and changes in interest rates.
Russell Pointon, Director of Consumer at Edison Group, said: “Pressures on prospective consumer demand have continued to intensify with consumer spending squeezed significantly. A perceived lack of economic clarity, and the subsequent fallout, from the UK Government’s mini budget and series of U-turns has not reassured consumers nor driven spending – the storm clouds of recession loom overhead as we move into the winter. The same is true of European and North America markets with continued economic uncertainty and rising energy costs demotivating consumer spending. “
“Businesses across the consumer sector are beginning to feel the effect of deepening macroeconomic uncertainty, with interest rates continuing to climb and a global recession looming around the corner. However, through detailed analysis of companies in the UK and Europe, our Consumer Watch report has identified several household names such as Marks & Spencer which provide investors with attractive valuations. Similar to the findings of our recent IPO report, the price of these stocks appears unreflective of their fundamentals, making these companies a potentially attractive investment opportunity.”
