The spectre of rising inflation in 2017 casts a new pall over Britains established grocers like WM Morrison Supermarkets (LSE: MRW), this fresh pressure on household budgets likely to drive even more shoppers into the arms of low-cost rivals.
The countrys so-called Big 4 supermarkets have already, and persistently, struggled to hang onto the coat tails of Aldi and Lidl even in a low inflationary environment. Indeed, latest Kantar Worldpanel data showed sales at Morrisons down1.4% during the 12 weeks to December 4.
By comparison, sales at the German cut-price chains surged 10% and 5.7% respectively. And this variance is likely to continue as the firms continue their ambitious expansion plans in the New Year and beyond.
With Morrisons having to keep on discounting to stop sales flatlining, and margins predicted to come under additional pressure as suppliers hike prices to mitigate sterling weakness, I reckon City predictions of a stunning long-term earnings bounce-back are built on extremely shaky foundations.
And I consequently believe that Morrisons P/E ratios of 21.7 times and 19.8 times for the periods to January 2017 and 2018 are far too expensive. Rather, I reckon these elevated numbers could result in a hefty negative re-rating should industry data continue to disappoint.
Under the screw
DIY giant Kingfisher (LSE: KGF) is another retail colossus facing an uncertain revenues outlook in 2017.
Demand for the furnishings and DIYexperts big-ticket items are likely to come under particular pressure should, as expected, the British labour market weaken and add to the angst created by increasing inflation.
But the Screwfix and B&Q owners UK operations arent the only problem as it also battles increasingly-choppy waters in its other core market of France. Like-for-like sales across the Channel ducked 3.6% during August-October, Kingfishers latest trading statement showed.
Kingfishers P/E ratios for the outgoing year and beyond are far more appealing than those of Morrisons, and multiples of 14.6 times and 14.1 times for the periods ending January 2017 and 2018 fall below the benchmark of 15 times widely considered attractive value.
However, I reckon the prospect of ongoing turbulence for its main markets still makes the retailer a risk too far.
I believe the prospect of a sharp economic cool down from next year onwards puts the investment appeal ofLloyds (LSE: LLOY) under the cosh, too.
The Black Horse bank snapped up credit card giant MBNA this week from Bank of America for 1.9bn to give its top line a much-needed boost. Lloyds estimates that the move will boost revenues by around 650m per year, and enhances the companys share of the UK cards market from 15% to 26%.
The deal marks itsfirst serious acquisition for almost a decade. But the scale of divestments in the wake of the 2008/09 banking crisis although an essential strategy at the time to repair the firms gruesome balance sheet still leaves the it facing prolonged revenues stagnation, a situation worsened by the rising Brexit-related headwinds.
With Lloyds also likely to keep having to stash oodles of cash long after 2017 to cover escalating PPI bills, I reckon the bank could experience further heavy share price weakness in the months and years ahead, even in spite of an exceptionally cheap paper P/E ratio of 9.7 times for next year.
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