1. UK Consumer Goods Industry Landscape

The Consumer goods sector consisted of a list of companies related to products & services purchased by individuals and households rather than manufacturers. Moreover, the key segments of industry include Food and beverages, Household, Personal care, Wholesale distribution industry and Agricultural industry. Furthermore, the Consumer Goods sector can be broadly classified as the durables and non-durables sector, whereas the overall sector can be broken down into several industries. Technological advancement is fueling up the consumer goods industry. The United Kingdom is one of the three leading cosmetic consumers in Western Europe.

Some of the most prominent consumer companies listed on LSE are Diageo PLC, British American Tobacco, Unilever, Reckitt Benckiser Group, Associated British Foods, and Imperial Brands, to name a few. According to official data from the Office for National Statistics, UK retail sales fell unexpectedly during May 2021 as the relaxations related to the Covid-19 restrictions had encouraged spending in restaurants rather than shops. Moreover, the retail sales had witnessed a monthly drop of approximately 1.40% during May 2021 as compared to April 2021. The food stores had witnessed a most significant drop of around 5.7% in sales.

Growth Catalysts in the Consumer Goods Sector

Risk Exposures to the Consumer Goods Sector

• Low consumer demand – The rise in unemployment levels and reduction in disposable income may cause a decline in consumer spending tendency, which could adversely impact consumer demand.
• Product Boycotts – The product boycotts might lead to a drop in sales; many retailers still fear them.
• Cybersecurity Risk – With a rise in online sales activity post Covid-19 pandemic, there is also an increase in e-commerce crimes. Moreover, digital criminals sought out innovative ways to target online retailers.
• Brand & Customer Loyalty – Customers always seek the best price with their favoured brands. For a small store’s long-term success, repeat customers and a loyal customer base are very important.

SWOT Analysis

Benchmark Index Performance

Based on the last six months performance, the FTSE All-Share Consumer Staples index has outperformed the FTSE 100 index but underperformed the FTSE 250 index. Furthermore, the FTSE All-Share Consumer Staples index generated a return of about 4.01%; however, the FTSE 100 generated a return of around 3.79%, and the FTSE 250 index produced a return of about 9.16%.

Figure 1: Six Months Benchmark Index Performance

 (Source: Refinitiv; Analysis done by Kalkine Group)

Consumer Goods Sector Outlook

The Covid-19 pandemic has changed the UK’s Consumer Goods industry dynamics. Moreover, the transition towards online shopping is now consolidating as the recent data suggested that one out of ten consumers across Europe now prefer online shopping for Food. The non-food segment had also witnessed quick adaptation of customers to shop online. Consumption patterns have also changed with more calories consumed in the home and growth in spending on furniture, garden products and home gym equipment. As part of a broader focus on health and wellness, the growth was witnessed in flexitarian diets, in particular vegan foods. The pent-up savings and demand, rising consumer confidence, and accelerated rollout of the vaccine will support the recovery of the consumer goods industry. It is expected that the UK retail sector will further boost up after the relaxation of remaining Covid-19 restrictions which are scheduled on 19 July 2021.

2. Investment analysis and stocks under discussion (DOCS, CBOX, MPE)

After gaining insights into the Consumer Goods sector, we would look at the business model of three Consumer Goods players listed on the London Stock Exchange. 

A. Dr. Martens PLC (LON: DOCS)

(Recommendation: Buy, Potential Upside: 34.78%, Market Capitalization: GBP 4.51 billion)

Dr. Martens PLC (LON: DOCS) is an FTSE 250 listed UK-based leading footwear brand. The Company has a diverse range of product categories such as Originals, Fusion, Kids, Casual and Accessories.

Valuation Methodology

Our illustrative valuation model suggests that the stock has an upside potential of 34.78% over the closing price of GBX 450.60 (as of 06 July 2021). The next important support level on the technical chart is at GBX 413.40.

B. Cake Box Holdings PLC (LON: CBOX)

(Recommendation: Speculative Buy, Potential Upside: 19.40%, Market Capitalization: GBP 119.20 million)

Cake Box Holdings PLC (LON: CBOX) is an FTSE AIM All-Share-listed UK-based franchise retailer and manufacturer of cakes. Moreover, the retail stores were operated under the brand Egg free Cake Box.

The Company will pay the final dividend of 3.7 pence per share on 13 August 2021, while the ex-dividend date will be 15 July 2021.

Valuation Methodology

Our illustrative valuation model suggests that the stock has an upside potential of 19.40% over the closing price of GBX 298.00 (as on 06 July 2021). The next important support level on the technical chart is at GBX 256.00.

C. MP Evans Group PLC (LON: MPE)

(Recommendation: Expensive, Potential Downside: 24.13%, Market Capitalization: GBP 401.29 million)

MP Evans Group PLC is an FTSE AIM UK 50 index listed producer of crude palm oil with plantations across five Indonesian provinces.

The Company had paid a final dividend of 17 pence per share on 18 June 2021, while the ex-dividend date was 22 April 2021.

Valuation Methodology

Our illustrative valuation model suggests that the stock has a downside potential of 24.13% over the closing price of GBX 734.00 (as on 06 July 2021).

*All forecasted data and peer information have been taken from REFINITIV.

*The reference data in this report has been partly sourced from REFINITIV.

*The "Buy/Speculative Buy” recommendation is also valid for the current price as covered in the report as on 07 July 2021.

*Depending upon the risk tolerance, investors may consider unwinding their positions in a respective buy/speculative buy stock once the estimated target price is reached or if the price closes below the support level (indicative stop-loss price).

Disclaimer

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