Hitting the high street

HITTING THE HIGH STREET

It's all been about the big names in European retail stocks so far this year, but it could be time to take a look at some of the second-tier players, RBC Capital Markets say.

The STOXX retail index (.SXRP) is up around 10% year to date, helped by a 17% rally by biggest weight Zara owner Inditex ITX and a 13% gain for second largest weight Next NXT

RBC say strong operational track records, high margins and return on capital employed have helped these larger retailers re-rate.

But, they add "we think that the market has not yet recognised operational improvements at some of the smaller players with more mixed track records. We see potential for these 'second liners' to re-rate over the balance of 2024."

They tip: "the likes of Marks & Spencer, Hugo Boss and Avolta, all of which are turnaround stories, albeit with more mixed track records."

That would fit with the historical trend, and following the global financial crisis, RBC say, the recovery in British retail stocks was first lead by the bigger names before second-tier rivals caught up and overtook.

M&A is also something to keep in mind, and flag Curry's CURY and Halfords HFD as "special situation stocks" that have been given support.

(Alun John)

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