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Stock Watch: Quiz, DS Smith & Berkeley Group

Emma-Lou Montgomery

Emma-Lou Montgomery - Fidelity Personal Investing

Online fashion retailers could be on the brink of a £2.6 billion “returns explosion” as the trend to buy an item, photograph it, stick it on social media and return it, reaches a peak during the festive party season.

With one in 10 UK shoppers openly admitting to buying clothes and sending them back as soon as they’ve posted the picture on social media, estimates are that the trend will push the value of items returned, up by £300 million this year.

Online fashion retailers are set to be hardest hit, with returns over the Black Friday weekend expected to top £457 million and placing a significant “financial hangover” on retailers who are unprepared.

Very much an unknown quantity, returns over the Black Friday weekend alone, across all UK online retailers, are set to hit £606 million.

It is a problem that all online retailers are aware of and are taking steps to tackle. While ASOS has threatened to block “serial returners”, Quiz is taking a different approach; hoping that if customers pick the perfect items, they’ll keep them.

It is using technology to provide personalised fit ratings and size recommendations based on each consumer’s unique body shape and preferences. They say: “This will help reduce the friction and disappointment felt by a customer when a garment doesn’t fit properly; reducing returns.”

Time will tell whether that does the trick, but shareholders will be hoping Quiz (QUIZ) has found the solution at a difficult trading time in the UK. 

Its shares have been treading water since September and still at just under 17p today they haven’t made any sustained headway. In fact, since they plunged in March after yet another profit warning, they remain more than 90% down from where they floated at in 2017.

The fashion retailer, which posts half-year results on Wednesday, has already said that it expects to post a 5% fall in first-half revenue. The numbers are forecast to come in lower than last year’s £66.7 million at £63.3 million; not helped either by revenue at its actual stores and concessions, which have fallen by a worse-than-expected 11% to £31.3 million.

In a statement the company said: 'Whilst trading conditions are expected to remain difficult, the board continues to believe that, through the strength of Quiz's flexible business model and increasing online focus, the group can return to sustainable profitable growth in the medium term.'

If things don’t appear as though they’re likely to be looking up any time soon, Quiz may well find it has some tricky questions to answer.

One company that should benefit from the rise in online shopping and the shift away from the high street is packaging company, DS Smith (SMDS), which posts half-year results on Thursday. A supplier to the likes of Amazon, Next, Aldi, Tesco, Primark and Ikea, it saw profits boosted by nearly a third last year and prompted it to raise its medium-term margin targets to between 10% and 12%, after it recorded a 10.2% margin this year; beating guidance of between 8% and 10%. 

However, as paper and packaging company Mondi has already flagged up, generally softer demand and prices for key paper grades that were below those of the first half, threaten to have an impact.

Back in September, DS Smith said it expected its full-year financial performance to remain unchanged, although it acknowledged that volumes were being impacted by economic uncertainty.

That confidence came despite 'ongoing subdued volumes in some markets, in particular those economies with significant export-led market exposure, including Germany'.

JP Morgan Cazenove recently reiterated its overweight investment rating on DS Smith, but cut its price target from 440 to 420 pence. UBS remains neutral but has raised its price target 8 pence to 358 pence.

Finally, on Friday we’ll get a half-year update from house builder Berkeley Group (BKG)

Like others in its sectors, profits at Berkeley have risen sharply since 2012, while share prices have soared. Back then they were trading at under £12. Today they’re £45-plus.    

But there are signs of strain, with the industry facing a triple whammy with Brexit, a potential global property downturn and the end of the government’s Help To Buy scheme, all threatening to leave their mark. 

Perhaps the biggest threat now to Berkeley and its main rivals Barratt, Persimmon and Redrow, is if the economy were to slow just as the Help to Buy scheme winds up. The equity loan programme is restricted to first time buyers from 2021 and set to come to an end in 2023.

London and South East-centric Berkeley had suggested it would widen its net to protect against a stalling market in and around the Capital. However, Berkeley has said the current financial year has started positively, with market conditions in London and the South East 'robust' during the first four months. It did however say the wider market remained constrained by high transaction costs and the uncertainty in the macro political and economic environment. So shareholders will no doubt want to hear more about whether Berkeley plans to continue to stick to familiar turf or venture further afield.

Net cash at the half year stage is expected to be at a similar level to the full year position of £975 million and the builder is aiming for pre-tax profits to top £3.3 billion within the next six years ,with annual profits coming in at between £500 million and £700 million.

HSBC has just downgraded its investment rating on Berkeley Group to hold from buy. But only two months earlier it had upgraded Berkeley to buy as part of a review of UK housebuilders, saying the whole sector offered “deep latent value” with sustainable free cash flow and dividends through to 2023 in all scenarios for the housing market. 

Goldman Sachs rates the shares a sell and has cut its price target from £39.53 to £38.60. The shares are currently trading around £47.

Important information: The value of investments and the income from them can go down as well as up, so you may get back less than you invest. Investors should note that the views expressed may no longer be current and may have already been acted upon. Reference to specific securities should not be construed as a recommendation to buy or sell these securities and is included for the purposes of illustration only. This information is not a personal recommendation for any particular investment. If you are unsure about the suitability of an investment you should speak to an authorised financial adviser.

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