Food retailers’ shares looked far from scrumptious ahead of Tesco’s interim results next Tuesday and Sainsbury’s second-quarter update a day later.
The latest food sector sales data have been lacklustre, prompting some brokers to advise investors to focus on generalists, and the extent of competition was illustrated this week by Waitrose’s price-matching offensive against Tesco.
Jefferies rates Tesco a hold, despite expecting “pedestrian UK growth”. The broker said: “At current levels the stock trades at about a 5% sector premium, which appears to be logical, as Tesco’s mid-term growth prospects are comparable to those of peers.”
Shore Capital, which rates Tesco a buy, was relaxed about Waitrose’s attack. Shore maintained: “Circa 60% of Tesco’s food and household and personal care lines are private label, which Waitrose cannot really match on price.”
Ocado remained out of favour with Shore as consultancy Verdict pointed to a slowing of retailers’ online sales growth. Shore reiterated its sell advice and said: “Verdict’s concerns may be multiplied as Government cuts of quangos in particular impact white collar households, a proportion of which may be Ocado shoppers.”
But online fashion star Asos was in favour with Philip Dorgan, who has just started at stockbroker Altium. He initiated coverage of the etailer with a buy note. “Asos has created a strong online fashion brand,” he said. “Replicating this internationally and surfing the expected surge in the online clothing market would lead to very strong earnings growth and significant cash generation.”
Buy Topps Tiles, reiterated house broker KBC Peel Hunt when the retailer said fourth-quarter like-for-like growth was likely to be 4% and that profits would be in the range of City expectations. Topps went through the mill during the recession but the broker said: “With a secure balance sheet, cash-generative model and stable trading levels, management has moved back towards a position of business as usual.”
Marks & Spencer, which has frequently been a persona non grata among investors, continued its rehabilitation. Its shares have risen more than 10% in the past three months and inched up over the week as Morgan Stanley upped its price target by 12% to 365p.
Also in demand was Comet-owner Kesa after RBS said the strength of its French business had been overlooked.
AIM-listed occasionwear specialist Jacques Vert posted 3.6% like-for-like growth in the first 22 weeks of its financial year. Menswear group Moss Bros posted an interim loss of £3.3m. The figure was a little up on last year, partly reflecting one-offs such as severance and reorganisation costs.