Major panic in London means bargains galore for opportunists willing to take a risk. And no, we are not talking about the smashing and grabbing currently going on in high streets around the city.
A new pair of trainers or a fancy plasma screen telly “for free” might be an attractive proposition to certain sections of the capital’s youth at the moment but after the FTSE100 dropped below 5,000 points for the first time in more than a year, London’s stock markets currently offer far more enticing prospects, although you will need to part with a little cash to take advantage of these opportunities.
Analysts appear to be big on two sectors this morning: retail (a little ironically perhaps) and oil.
Singer Capital Markets noted that retail sales trends improved slightly in July, "although the latest turmoil in global markets and rioting on the domestic front may undermine confidence and spending again in the near term”.
In spite of this, Singer reckons the sell-off has left a few names in “interesting territory”. In addition to its key picks Debebhams and Howden Joinery, the broker thinks KESA (LON:KESA) and Marks & Spencer (LON:MKS) could both offer investors a route to outperformance at their current levels.
"Of the liquid names, we think Marks & Spencer stands out as an opportunity, now back at its two-year low, from which it bounced five times in that timeframe,” said Singer.
"Valuation has moved in line with Next... and we are nearing the point where the wave of investment will begin to generate more interesting EPS growth rates.”
The broker described KESA Electricals as “one to watch”, given that the second round of Comet discussions is said to be progressing and with press speculating about a £100 million “dowry” in order to cover the firm’s pension issue.
Shares in M&S and KESA were trading for 319 pence and 107.7 pence by mid-morning, down 2 per cent and 2.4 per cent respectively.
Espirito Santo Investment Bank said that accountancy firm BDO’s sales data for July was encouraging for clothing retailers. BDO said that fashion retailers had delivered a “robust” rise in sales in July as damp weather and promotions drove footfall.
However, it said that British Retail Consortium data – which showed 0.6 per cent growth in July’s sales on a like-for-like basis – paints a mixed picture.
But the Anglo-Portuguese bank was rather upbeat about bakery group Greggs (LON:GRG) after it reported increased sales for H1 2011 and an H1 pre-tax profit of £17.3 million (2010: £18.5 million). “Against many in the sector, Greggs has held up well, though much depends on H2,” said Espirito. “The business remains cash generative and is well managed.”
The bank pointed out that the share had de-rated recently, and its valuation of 11.6 times 2012’s estimated earnings “is not expensive for a quality retailer with good longer term growth prospects”.
Greggs was down 10.2 per cent at 432.8 pence during mid-morning trading.
In the oil exploration sector, where many shares have been under severe pressure during the past week, Falklands explorer Rockhopper Exploration (LON:RKH) raised a cheer after it said it believes results from its 14/10-6 appraisal well, on the main fan complex in the Sea Lion discovery, confirm that the discovery is commercially viable. Shares in the firm leapt up to 177.7 pence by mid-morning, an increase of 26 per cent, while fellow Falklands explorer Desire Petroleum (LON:DES) – which is yet to make a similar discovery itself –also saw a 4.2 per cent rise to 14.3 pence.
Only a week ago shares in Rockhopper were changing hands for more than 200 pence each.
Evolution Securities stuck to its ‘buy’ rating for Rockhopper’s shares, as well as its 450 pence price target.
Among Evolution's list of buys are Argos Resources (LON:ARG), Green Dragon Gas (LON:GDG) and Xcite Energy (LON:XEL).
Meanwhile, Canaccord rates Rockhopper as being worth 593 pence per share. “The 14/10-6 well has confirmed significant reservoir development and hydrocarbon charge in the currently interpreted mid case area, significantly de-risking the Sea Lion project,” said the broker.