Can Justin King make Sainsbury’s great again? Analysts mused the question a week after the collapse of Delta Two’s bid, as the grocer posted an interim rise in profits and sales and launched a property joint venture with Land Securities.
Blue Oar Securities was lukewarm about prospects and said Sainsbury’s was trading at an unjustified premium to Tesco, which has just opened in the US. It was concerned that Sainsbury’s might have problems increasing its operating margin and pointed out that its sales growth target is£3.5 billion over three years, compared with Tesco’s likely UK sales growth of£10 billion.
Pali International thought Sainsbury’s looked “very oversold” and expected a price bounce following the results. The broker said the pre-announcement closing price of 426p failed even to reflect property values. “The op-co is deemed worthless, which seems harsh,” said Pali.
Sainsbury’s rival Morrisons updates on third-quarter trading next Thursday. Deutsche Bank rated it a hold and expects like-for-like growth of 3.2 per cent. The broker has a price target of 300p and said: “Upside risk exists in the event of a stronger-than-expected customer response to rebranding and in the event that management has been too cautious in its cost saving – and particularly gross margin gain – estimates.”
Upscale fashion group Burberry posted a 31 per cent surge in first-half pre-tax profits to£95.8 million. Revenues jumped 15 per cent to£449.1 million. Underlying retail sales soared 20 per cent to£202.5 million and accounted for 45 per cent of the group total.
Signet, the giant jeweller that does most of its business in the US, notched up a 3.2 per cent group like-for-like sales improvement in its third quarter.
Panmure Gordon conceded “a good achievement against a generally weak retail trading pattern in the US”, but stuck to its sell advice. “The risk is that the trading environment in the US deteriorates more than we anticipate, which makes us reluctant to turn more positive at present,” said the broker.
A profit warning from Stateside DIY giant Home Depot makes a bid for Kingfisher less likely, observed Kaupthing. The broker was also sceptical about the chances of a Kingfisher leveraged buy-out, “given its existing debt profile and that a proportion of its property assets may not be immediately saleable”.
Kaupthing was pleased by Mothercare’s decision to test the German market (Retail Week, November 9). “This highlights the confidence in the brand and focused maternity and baby product offering,” it said. Mothercare releases results next Thursday.
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