Investing.com — Even after two years when Retailers index suffered a sharp de-rating amid inflation fears, valuations in the UK consumer sector remain subdued, even as signs of a potential rebound emerge.
Berenberg highlighted that All-Share Retail index earnings per share are up 23% over the past two years, while the 12-month forward P/E has risen from a low of c9x in September 2022 to 11.5x currently.
Despite this recovery, valuations across many UK consumer stocks remain significantly discounted.
Pre-COVID-19 averages show current valuations are, on average, 13% lower, and the discount deepens to 20% excluding standout performers like Marks & Spencer (OTC:). Some companies, including B&M, Card Factory, Currys, JD (NASDAQ:) Sports, and Origin Enterprises, trade at more than a 30% discount.
Analysts expect a brighter outlook for UK consumer spending by 2025, underpinned by real income growth and easing household savings ratios. While consumers remain cautious, the November uptick in GfK’s UK Consumer Confidence Index offers encouraging signs for an acceleration in retail sales growth.
Among top stock picks for 2025, UBS highlighted B&M, Card Factory, Currys, Dunelm, JD Sports, and Warpaint for their robust market positions and structural growth drivers.
Key themes shaping the sector include supply-chain resilience, cost pressures, artificial intelligence adoption, mergers and acquisitions, and evolving routes to market. Analysts expect these dynamics to continue driving sector consolidation, favouring firms with scale and financial strength.
With inflationary pressures easing, the cost-of-living squeeze has technically ended, but consumers remain conservative in their spending habits. As confidence grows, analysts expect pent-up cash reserves to boost retail activity, providing a clearer path to recovery.
