The UK might be coming out of lockdown slowly, but the economy is already showing signs of recovery. This is good news for UK shares.
UK stock markets have already been rising on greater investor confidence, and could continue to do so as companies’ financials get healthier. Retail is an example of a segment that could benefit.
Retail returns to good health
According to a retail sales measure developed by the British Retail Consortium and consulting firm KPMG, the UK’s retail sales rose by 1% in February from the month before.
January was a poor month by this measure, as retail sales had actually shrunk from the month before as the UK locked down again.
I am inclined to believe that the pickup in February will continue as the re-opening process starts slowly but steadily. Latest company numbers support this view too.
Robust performance, rising share price
Earlier today the FTSE 250 stock DFS Furniture (LSE: DFS) reported a strong set of numbers. Its revenue grew by 17% for the half-year ending 27 December 2020. Its pre-tax profit was up 56%. Going forward, it expects a healthy 2021 as it can reopen stores.
DFS Furniture’s share price gained 6% on the news today. I think going by the expected pickup in consumer demand, DFS’s own outlook, as well as its past performance, its share price could do well for the foreseeable future.
The one word of caution about DFS is that unlike its revenues, its profits have not risen consistently, even though it has remained profitable. Yet, I think its recent performance has added to its credentials, since it has come at a difficult time.
I especially like its online sales growth of 66% in its latest results, which could be positve in the future as sales become increasingly digital. For this reason I think this is a stock to buy.
A UK share to hold for the long term
Another retailer to take note of today is the FTSE 100 luxury brand Burberry (LSE: BRBY). It probably had a rougher 2020 than many other stocks.
Because of its dependence on Chinese demand, the Burberry stock had started falling in January last year. By the time the stock market crash hit the UK, its price had collapsed spectacularly, to less than half the value at which it started the year.
But it is trudging its way back up, having regained a large part of its former value. In fact, going by Chinese growth forecasts this year, this UK share can continue to do quite well. In its last trading update, the company said that it has “confidence in its prospects”, which is encouraging too. Further, it has repaid its Covid-19 loan to the UK government.
One challenge with Burberry is its unbelievable earnings ratio of 380 times. This, though, is only because of the hit on its earnings, not because its price has gone through the roof in absolute terms.
I suspect this situation will correct itself as its profits become healthier. Going by Burberry’s brand value and its ongoing appeal, this is one I can hold for the long term.
