The boom times are back! At the end of last month, it was revealed that the number of UK consumers willing to spend money has climbed to a nine-year high.
What’s more, another survey showed that household finances were improving across the country. According to the survey, during April families had on average £17 per week in their pockets to spend on ‘luxuries’.
And retailers NEXT (LSE: NXT), Marks and Spencer (LSE: MKS), Boohoo.Com (LSE: BOO), ASOS (LSE: ASC) and Sports Direct (LSE: SPD) are all set to benefit from rising consumer confidence as well as consumers increasing disposable income.
Looking after investors
If you’re looking for a great play on improving consumer sentiment across the UK, you can’t go wrong with NEXT.
NEXT is one of the UK’s greatest success stories, and the company is focused on looking after its shareholders.
Through a well-thought-out blend of business investment and share repurchases, NEXT’s operating profits have expanded by 350% over the past 15 years. Over the same period, the company’s earnings per share have jumped by a staggering 1000%.
Unfortunately, City analysts expect NEXT’s growth to slow over the next three years. EPS growth of approximately 4% per annum is penciled in through to the end of 2017.
Still, NEXT is committed to returning excess cash to investors through special dividends. Analysts believe that NEXT will yield 4.2% this year. The company currently trades at a forward P/E of 18.4.
Explosive growth
Much of NEXT’s growth is now behind the company, but according to City analysts, the growth story at Sports Direct is only just getting started.
Sports Direct’s EPS have jumped by 91% over the past five years and the next three years, EPS are predicted to growth another 54%.
At present, the company currently trades at a premium forward P/E of 18.4, which looks expensive.
However, after factoring in the group’s projected growth rate over the next few years, Sports Direct is trading at a 2017 P/E of 14.4 — not an overly demanding valuation.
Going upmarket
At the end of last month, Marks and Spencer announced an impressive set of full-year results.
The group reported that during the 13 weeks to 28 March, clothing and homeware sales at established stores rose by 0.7%, bringing to an end years of falling sales. Moreover, for the year ending 28 March the company reported a 0.6% increase in like-for-like food sales.
Still, Marks’ shares don’t come cheap.
The company currently trades at a 2016 P/E of 17.7. Analysts believe that Marks’ EPS will tick higher by 7% during 2016, giving a PEG ratio of 2.5. At present, Marks supports a dividend yield of 3.1%.
Paying a premium
Due to their wide profit margins and cash generative natures, Boohoo and Asos are my two final plays on improving UK consumer sentiment.
Unfortunately, the market has placed a premium valuation on these companies, which leaves plenty of room for error if the companies fail to meet lofty forecasts for growth.
Specifically, Asos is trading at a forward P/E of 86.3. EPS are set to fall by 5% this year before rebounding by 26% during 2016. Asos trades at a 2016 P/E of 67.2.
Boohoo currently trades at a forward P/E of 23.6, although the company EPS are set to jump by 43% this year.