Berenberg starts coverage of N Brown, Quiz and Joules

Berenberg started coverage of N Brown, Quiz and Joules on Tuesday as it took a look at the broader retail sector, noting that the gap in performance between online and store-based retail in the past three years has been huge.

The bank initiated coverage of specialist fashion retailer N Brown at 'hold' with a 130p price target, arguing that its competitive advantage is being eroded.

It said that as the only plus size specialist of scale, N Brown held a significant competitive advantage over peers for many years. However, the online retailers that have recently entered the market are providing greater competition, putting pressure on sales.

Berenberg said the company’s loan book has proven to be highly profitable so far, although its outlook is uncertain.

"With the shares trading on circa 6.2x FY 2019E price-to-earnings, we think these concerns are currently fairly priced in, and we therefore initiate coverage with a hold rating.

The bank also started fast fashion retailer Quiz at 'hold' with an 80p price target, saying that it likes the model but has some concerns. It pointed to the company's profit warning last Friday, which it said highlights a number of issues, namely the lack of differentiation amid intense competition in the fast fashion market, which is holding back growth.

"In addition, the company’s large exposure to troubled retailer Debenhams gives us cause for concern. A valuation of 18.3x FY 2019E price-to-earnings seems to be fairly pricing in these risks, so we initiate coverage with a hold."

British premium lifestyle brand Joules fared better as Berenberg started coverage of the stock at 'buy' with a 360p price target, saying it is it is well placed to emerge as a long-term winner in the challenging UK retail market.

"Investments in its e-commerce offering, coupled with a very flexible store estate, have enabled it to adapt to sales shifting online. Equally, we believe its wholesale and licensing businesses could provide material benefits," Berenberg said.

Although the shares currently trade on 10.5x FY 2019E EV/EBITDA, Berenberg said that given its positioning and increasing online exposure, Joules should trade more in line with pure-play online retailers.

At 1400 BST, N Brown was down 2.6% to 129.40p, Quiz was 9% weaker at 56.20p and Joules was down 0.9% to 290p.