Improved performance for consumer sectors through Q422 despite continued downgrades to profit estimates, suggesting increased risk appetite by investors
International equity research and investor relations consultancy, Edison Group today releases its widely circulated quarterly report, Consumer Watch, which looks into the state of the consumer sectors in the UK, Europe and North America. The report examines the recent share price performance of the companies and sectors, trends in consensus estimates, and how valuations compare with historic levels.
The report concludes that the widely expected economic slowdown still presents a challenging outlook for current profit estimates of the consumer sectors but that the downgrades are widely discounted in many share prices following poor performance through 2022, and therefore the risk/reward profile is favourable for many companies.
Across the main economies there are many examples of falling demand, which are broadly expected to intensify in 2023 as consumers battle higher interest rates and above-target inflation, albeit the latter is expected to continue to moderate as the year progresses. Despite an expected bounce in Christmas spending due to favourable COVID-19 comparisons, the pressures on disposable income are mounting and consumers are being forced to make real choices.
As macroeconomic challenges mounted through the end of 2022, consensus profit estimates continued their downward trend for UK- and US-listed companies but increased marginally for their European counterparts. The report also notes that current consensus estimates continue to forecast expects year-on-year profit growth of 16%, 6% and 13% for the UK, European and North American consumer sectors, respectively, which Edison believes is optimistic in the face of expected lower consumer demand.
However, global investors are well primed for an economic slowdown. Despite the deteriorating macro-economic outlook, the report notes that the main market indices staged a strong recovery in Q422. There was also a notable change with more positive performance by some of the consumer sectors than previously, including by some of the discretionary sectors, as investors took advantage of some extreme valuation opportunities at the end of Q322 and increased their risk appetite. As we enter 2023, our screens have identified almost 800 companies in the three regions that are valued below their long-term low EV/sales multiples, and the report lists over 300 of the most attractively valued companies relative to their own history. In the UK, these include C&C Group, Rank Group, and Restaurant Group.
Russell Pointon, Director of Consumer at Edison Group, said:
"Whilst global economic headwinds continue to challenge economies, it isn't all doom and gloom. We believe there are many attractive valuation opportunities across the global consumer sectors despite the obvious concerns about the outlook for profit estimates. The upcoming results season will present management teams and analysts with the opportunity to revisit their expectations for the coming year.
For more information visit the Edison Group
