The electrical retailers are under the spotlight of analysts at Nomura as DSGi (Dixons Stores Group) and Kesa Electricals (Comet) gear up for new competition when US electrical retailer Best Buy starts trading in Britain next year, DSGi is tipped to come off better.
Anlayst Christopher Walker at Nomura has reiterated his longer-term “buy” recommendation on DSG, which controls Currys and PC World, citing the group’s focus on a medium-term strategy “revolving around a service-led offer.”
Mr Walken says of DSGi’s next update:
“The recovery story is not sales led in the short term, and therefore, in the short term, we expect Q1 sales to remain challenged. We expect a similar run rate to Q4, within which group like-for-like sales were down c.11%. Macro data in the UK, Greece and Spain remains weak while UK store availability appears lower due to tight working capital management.”
“We reiterate our Buy rating and 35p price target, but given the recent 50% rally, we would not be chasing the stock into 1Q trading on 2 Sept.”
Comet owner Kesa, on the other hand, may need a more “differentiated approach”, he says, maintaining a “neutral” rating and caution on the longer-term outlook.
“Despite being early to the service-led model, the UK offering is not sufficiently differentiated, making Kesa more vulnerable if Best Buy fulfils its potential, in our view. New management may need a medium-term strategy to defend its current market share.”
There’s been a lot of buzz about Best Buy entering the European market but there is also much speculation that, just like UK and EU retailers trying to establish themselves across the pond, that they may struggle in gaining a meaningful toehold in Europe.
The trouble for the US retailers, such as Best Buy and Wall Mart, entering into the EU is that they have to adhere to much tighter employment legislation and a raft of other rules and regulation that do not allow them quite the same freedom that they have in the US.