As the pressure mounts on shopper spending power in the months ahead, I reckon car sales at Inchcape (LSE: INCH) could experience a sharp downturn.
While the Society of Motor Manufacturers and Traders (SMMT) announced last month that car sales rose 1.4% in October, demand from private buyers slipped for the seventh month in a row. And the SMMT underlined the long-term pressures created by June’s referendum by warning this week that the sticker price on foreign cars could rise by £1,500 should the UK leave the single market.
Demand for fleet cars has kept the car industry from stalling in recent months. Still, the uncertainty created by the Brexit vote looks likely to weigh on business sales looking down the line.
This outlook bodes badly for the country’s vehicle vendors. And while the City expects Inchcape for one to record a 6% earnings bounce in 2017, I reckon this projection is in severe danger of a sharp downgrade, putting a P/E ratio of 10 times in huge jeopardy.
Foodie to fall?
The Square Mile’s army of brokers aren’t as optimistic over the J Sainsbury (LSE: SBRY) earnings outlook as we move into 2017.
Current estimates suggest a 12% decline in the period to March 2017, the third consecutive dip if realised. But this isn’t expected to be the end of it, and a further 2% slide is expected for fiscal 2018.
And forecasters are quite right to be cautious, in my opinion. The London chain’s losing battle against the competition shows no signs of easing, as evidenced by latest trading numbers that showed like-for-like sales slipping a further 1% during April-September.
Indeed, the competitive pressures battering Sainsbury’s and its mid-tier competitors are likely to increase in the years ahead as Aldi and Lidl’s ambitious expansion programmes take off, and Amazon’s recently-launched grocery operations gain traction.
Sainsbury’s clearly has plenty of work in front of it to stop sales sliding. And I reckon a P/E rating of 11.6 times is still too expensive given its colossal growth barriers.
Running out of gas
Rising pressure on household budgets next year could also heap fresh stress on Centrica’s (LSE: CNA) battered British Gas arm.
The emergence of cut-price energy suppliers has seen Centrica’s retail customer base steadily erode in recent years, and there are now dozens of independent companies vying for attention. This phenomenon caused the number of British Gas clients to dip an extra 3% between January and June.
Centrica’s share price has received a fillip in recent days after OPEC and Russia agreed to curb oil production, the first such action since 2008. While this has boosted the profits picture for the company’s Centrica Energy production arm, the oil market outlook remains far from assured, in my opinion, particularly as the chances of the deal unravelling remain high.
The number crunchers expect earnings at Centrica to rise 5% in 2017, creating a P/E ratio of 12.9 times. And although this reading is also low on paper, I reckon — like Sainsbury’s and Inchcape — signs of deteriorating market conditions could send the energy giant’s share price sinking again.
