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The Expert View: Sainsbury’s, Legal & General and Ocado
Our daily roundup of analyst commentary on shares, also including Balfour Beatty and National Express.
by Michelle McGagh on Mar 16, 2016 at 05:00
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Sainsbury’s sales return to growth after two years
Fourth quarter results from Sainsbury’s (SBRY) show sales are returning to growth, albeit slowly.
The Share Centre analyst Graham Spooner retained his ‘buy’ recommendation but does not have a target price on the stock. The shares fell 1.1% to 277.6p yesterday.
‘The UK’s third biggest supermarket Sainsbury’s said that like-for-like sales rose by 0.1% in the three months to 12 March. Albeit this is a small increase, investors should acknowledge that it means the company is returning to sales growth for the first time in two years,’ he said.
‘The group expressed confidence on being able to outperform its main peers and that it also stated it remained committed to stopping the majority of its multi-buy promotions for grocery products. Investors should appreciate that in view of all the competition and resulting price wars, we believe the figures reported are encouraging.’
Spooner pointe to the lack of an update on the supermarket’s Home Retail Group bid. ‘Sainsbury’s remains our sector pick in what is set to remain a very competitive market place. We recommend the group as a “buy” for medium risk investors with a balanced portfolio,’ he said.
Balfour Beatty: profit prospects look good
Construction company Balfour Beatty (BALF) is expected to return to profit this year despite UK losses.
Numis analyst Howard Seymour retained his ‘add’ recommendation and target price of 290p. The shares fell 2.5% to 252.7p yesterday.
‘UK losses were always going to be the key feature of results, but we believe the tangible management progress on costs and cash performance set the scene for movement back to profit in 2016,’ he said.
‘We contend that the majority of legacy issues will be eliminated this year, and outline here our 2018 estimates which are driven by management initiatives to give Balfour the strongest recovery profile in the sector. Meantime the ongoing value of, and investment in, the public private partnership portfolio continues to provide strong underpinning at the current share price. We therefore expect a progressive re-rating from special situation to recovery stock for the company – in an industry which is only at the start of the upturn in terms of government investment and industry recovery.’
L&G ‘superbly’ placed for market changes
Insurer Legal & General (LGEN) has reported ‘excellent’ 2015 results and is ‘superbly positioned’ for changes in the UK financial sector.
Shore Capital analyst Eamonn Flanagan reiterated his ‘buy’ recommendation but does not have a target price on the stock. The shares fell 6.4% to 228.1p yesterday.
‘L&G reported an excellent set of results for 2015 with the cash better than we and the market had expected and the operating profits broadly in line. However, the 19% growth in the dividend, to 13.4p, was the highlight, together with the guidance towards a ‘progressive dividend policy’ based upon the expected medium-term underlying business growth,’ he said.
He added that the ‘distribution footprint in the UK remains immense, leaving it superbly positioned to take advantage of the plethora of regulatory changes across the UK market’.
National Express still has some way to go
Bus and train operator National Express (NEX) has delivered increasing in profits and dividend, but is there further to go?
Barclays analyst Rishika Savjani reiterated his ‘overweight’ recommendation and target price of 329p on the shares, which were broadly flat at 325.9p yesterday.
‘Having delivered a +7.8% increase in underlying operating profit, a +10% increase in the dividend, free cashflow 10% ahead of guidance and with the shares up 33% over full-year 2015 it would be fair to ask if National Express investment case has further to go. We think it has,’ he said.
‘We see upside through organic and inorganic growth, best-in-class free cashflow generation and multiple expansion. We reiterate our “overweight” on National Express and keep the name as our preferred pick in the public transport space.’
Ocado investment case up in the air
The investment debate around online supermarket Ocado (OCDO) is fraught with questions about it international expansion and its competitors.
Jefferies analyst James Grzinic retained his ‘hold’ recommendation and target price of 265p on the shares, which rose 3.4% to 270.4p yesterday.
‘Ocado’s Q1 sales update is coincidental to the stock’s investment debate, even if it confirms further gradual gains in UK share,’ he said. ‘More materially for the group, we await details of how Morrisons’ agreement may change, and whether Amazon’s push into UK food could negate the attractions of Ocado’s international licensing prospects.’
He added that Morrisons has signed a wholesale agreement with Amazon while confirming ‘an agreement in principle with Ocado to develop a store-picked offering’.
‘We believe the latter is reliant on some wider changes to the contract currency regulating the Morrisons and Ocado relationship,’ he said. ‘There are a number of variables introduced by these developments, including the extent to which Ocado’s market share could be impacted by Amazon in the UK, or whether the Morrisons negotiations will result in reduced annual payments to Ocado. We await further details before reconsidering our Ocado fair value estimates.’
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Look up the shares
- J Sainsbury PLC (SBRY.L)
- Ocado Group PLC (OCDO.L)
- Balfour Beatty PLC (BALF.L)
- Legal & General Group PLC (LGEN.L)
- National Express Group PLC (NEX.L)