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The Expert View: Sainsbury's, BP and Barclays
by Harry Brooks on Oct 31, 2013 at 05:01
A roundup of analysts' commentary on shares, also including Rolls-Royce and Standard Chartered.
Our daily round-up of analyst recommendations and commentary, featuring Sainsbury's, BP, Barclays, Rolls-Royce and Standard Chartered.
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Sainsbury's takes Tesco's 'Price Promise' to Judicial Review
Sainsbury (SBRY.L)'s decision to pursue its complaints about Tesco's 'Price Promise' may backfire, Shore Capital has warned.
The supermarket has decided to take the Advertising Standards Authority (ASA)’s rejection of its complaint against Tesco’s 'Price Promise' to Judicial Review. Sainsbury's isn't happy because it says the comparisons fail to compare like for like.
'Tesco matches products such as its Everyday Value Tea, which is not Fairtrade, with Sainsbury’s basics tea, which is... Other examples include our basics water, which comes from a spring in Yorkshire, filtered through mineral-rich Greenmoor rock but which Tesco compares with its Everyday Value water, which starts at the mains supply,’ Sainsbury's said.
However, Shore Capital said this is not a fight that Sainsbury's should be picking. The analysts warned that it may show up the limitations of Sainsbury's own 'Brand Match' scheme: 'Tesco UK has exposed to the market that Sainsbury’s ‘Brand Match’ only applies to proprietary brands and not fresh food nor private label; the bulk of what Sainsbury sells,' the analysts said, reiterating their 'hold' stance on the shares.
'More to the point, Sainsbury is potentially bringing price, an area where it is traditionally weak, on to the agenda, and here not only Tesco UK, but Asda and Morrison will be watching with especial interest, as they all have demonstrably cheaper overall baskets than Sainsbury.'
Shares in the group closed at 399.2p on Wednesday, up 1.2p or 0.3%.
BP results 'good – but not that good', Investec says
BP (BP.L)'s results were 'good – but not that good', according to Investec, which bumped up its target price but retained its 'hold' recommendation.
Third-quarter replacement profits (which strips out the effects of changes in the oil price) fell to $3.7 billion, down from $5 billion a year ago. This was some 17% better than consensus estimates, and the oil major cheered up its investors by annoucing that it's going to sell $10 billion of assets over the next two years to return cash to shareholders.
'The stock market seems gradually to be bringing these unruly oil majors to heel,' Investec's Neill Morton said. 'Every announcement to increase cash distributions via capex cuts and/or asset disposals is rewarded by a share price increase.
'BP trades on a sector-average price to earnings (P/E) multiple (10x) and a sector-average dividend yield (5.0%). Our P/E-based target price rises to 460p (440p) on improved clarity, but Hold retained.'
Shares in the group closed at 484.8p on Wednesday, up 7.3p or 1.5%.
'Buy' Barclays, Jefferies says
Barclays (BARC.L)'s third quarter was good enough for Jefferies to reiterate its 'buy' recommendation on the shares.
Underlying pre-tax profits of £1.49 billion in the period were 2% ahead of consensus estimates.
'UK banking revenues were better than expected,' analyst Joseph Dickerson said. 'We believe the group may be delivering early on its leverage exposure plan given £20 billion of the £78 billion quarter-on-quarter decline in leverage exposure looked proactive (meaning that the group is delivering early on its £65-80 billion reduction programme).
'We continue to regard the risk/reward of BARC as attractive and reiterate our Buy recommendation.'
Shares in the group closed at 270.6p on Wednesday, up 4.6p or 1.7%.
Liberum eyes 'buy' window for Rolls-Royce
A weak run for Rolls-Royce (RR.L) shares provides a good entry window for investors, according to Liberum Capital, which has included the power systems specialist on its list of high-conviction 'buys' for the year ahead.
'Underperformance since H1 and a 2014 enterprise value/earnings of 9.7x is an opportunity,' analyst Ben Bourne said.
The management are currently focused on bringing down the cost of cash at the business, which Bourne said has plenty of room for improvement. He's forecasting 2013 and 2014 earnings per share growth of 20% and 8% respectively, 3% ahead of consensus estimates.
One possible near-term catalyst for the shares is the Dubai Airshow, which takes place at the end of November.
Shares in the group closed at £11.50 on Wednesday, down 10p or 0.9%.
'Buy' Standard Chartered on Asian growth potential, Nomura says
Standard Chartered (STAN.L)'s weaker revenues in the third quarter were to be expected, according to Nomura, and earnings momentum should turn soon.
The bank, which makes three-quarters of its profit in Asia, said revenues in the three months to the end of September dropped by a 'low single-digit percentage' from the same period a year ago.
Nomura retains its 'buy' recommendation on the shares, and the analysts believe Asia's long-term growth should power the bank.
'While there are reasons to be cautious of bubbles within the economies in Asia, we do not see Asia as a bubble, but rather a longer- term growth story. Also, with a very liquid balance sheet we expect STAN to outperform other Asian banks on asset quality issues,' the analysts noted.
Shares in the group closed at £15.11p on Wednesday, down 32.9p or 2.1%.