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The Expert View: Sainsbury's, Tesco, Unilever
by Harry Brooks on Oct 03, 2013 at 05:01
A roundup of analysts' commentary on shares, also including Wolfson.
Our daily round-up of analyst recommendations and commentary, featuring Sainsbury's, Tesco, Unilever and Wolfson.
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Sainsbury's emerges as victor in battle of the supermarkets
Shares in Sainsbury's (SBRY.L) look fully valued, according to Cantor Fitzgerald, even though it emerged as the victor in yesterday's battle of the supermarkets.
The second-quarter update showed group sales excluding petrol up 2%, in line with what the analysts had predicted. Tesco, meanwhile, reported flat sales over the period.
'Sainsbury’s has added another positive like-for-like sales quarter, making 35 since Q4 of 2005,' analyst Mike Dennis said.
'This highlights the polarisation in the UK grocery market, with the quality own-brand operators like Sainsbury’s and Waitrose growing ahead of the market and the value-orientated discounters, like Aldi and Lidl, growing faster at the other end, while the mid-market brands of Tesco (BUY – TP 443p), Asda and Morrisons (SELL – TP 229p) are all underperforming.'
Nonetheless, at a 2014 enterprise value to earnings ratio of 11.7x the shares look fully valued, the analyst said, and he reiterated his 'hold' recommendation.
Shares in the group closed at 385.3p on Wednesday, down 4.9p or 1.3%.
Tesco profits fall on Europe woes
Shore Capital has cut its full-year profit forecast for Tesco (TSCO.L) on the back of a signficant fall in first-half profits.
Pre-tax profits in the period came in at £1.39 billion, down 23.5% on the same period a year ago. Tesco blamed the challenging retail environment, with Europe - where profits fell 67% - a particularly sore spot.
'Trading in H1 was pretty atrocious in a number of Tesco's European markets,' analyst Clive Black acknowledged.
'Overall, ahead of the analysts' meeting, we are inclined to downgrade our full year forecasts for Tesco by circa 4% taking trading profits down by £140 million to £3.33 billion.'
Black nonetheless retains his 'buy' recommendation: 'There is more to do, clearly given some of the trading data issued today. However, the prospect of a more focused, stable and cash generative Tesco, where trading profits expand and on a lower capital expenditure programme, free cash emerges remains a reasonable medium-term expectation.'
Shares in the group closed at 358p on Wednesday, down 1.1p or 0.3%.
UBS downgrades Unilever
UBS has downgraded Unilever (ULVR.L) from 'buy' to 'neutral' as the consumer goods giant pays the price for its reliance on emerging markets growth.
Unilever warned that sales growth in the third quarter is probably going to come in lower than previously expected at 3-3.5%.
Analyst Alan Erskine said the revised figures cast doubt on the firm's dependable, 'defensive' reputation: 'In our view, three successive top line misses culminating in what is likely to be one of the softest Q3s in the consumer space not only robs Unilever of the reputation for reliability it had built up over the previous 18 months, but raises questions over the causes of what appears to be a loss of momentum in the market place.'
Erskine added that pressures on the euro currency, coupled with slowing emerging market sales, pose a major problem for the firm. 'Whilst this does not invalidate the long-term structural EM growth story, perhaps the market needs to revisit the growth algorithm one should apply,' he said.
Shares in the group closed at £23.19 on Wednesday, down 39p or 1.7%.
Electronic components maker Wolfson (WLF.L) still has a compelling growth story, according to Liberum Capital, even after the collapse of one of its biggest customers, BlackBerry.
Wolfson issued a profits warning in the wake of BlackBerry implosion, warning that profits would be in the range of $40 million-$50 million versus prior consensus estimates of $58 million.
The Edinburgh-based firm didn't name BlackBerry, instead citing 'the cancellation of product programmes at a major customer following a strategic review of its business', but the analysts said the Canadian smartphone company was probably the reason for the downgrade.
Analyst Janardan Menon still retains his 'buy' recommendation, though. 'Despite the disappointment of the Q4’13 profit warning we maintain our buy recommendation as we believe there hasn’t been any change in the longer-term outlook,' he said.
Shares in the group closed at 147p on Wednesday, down 27.5p or 15.8%.