Sainsburys said market share at "highest for decade"

Sainsbury's said market share at "highest for decade"

Sainsbury's shares rose today (13 November) after it reported improved half-year profits, its highest market share in a decade and upped its margin forecast for the year. It also increased its dividend. City analysts said Sainsbury's performance was strong.

Panmure Gordon analysts Graham Jones and Damian McNeela

"Sainsbury's H1 results saw PBT rise by 7% to GBP400m, slightly ahead of the consensus forecast of GBP394m. Sainsbury's is the only 'big four' grocer that is taking market share, and that comes from being the only one, in our view, that isn't in the process of rectifying previous strategic mistakes, whether it be lack of exposure to growth channels (c-stores and online) in the case of Morrisons or a portfolio of overly large stores in the case of Tesco. We raise our 12-month price target from 400p to 425p on the assumption that the current rating of 12.2x P E and a 4.4% dividend yield will roll-over to 2015 in due course. Hold.

Morgan Stanley analyst Edouard Aubin

"Overall, Sainsbury reported another strong set of numbers. Following another solid performance and a new guidance revised upwards, we now expect FY14 underlying PBT to reach GBP802m (from GBP789m). Sainsbury raised its profit guidance for FY14: it now expects 'mid-single digit basis point growth in operating margin' year-on-year (vs. flat previously).

"We believe Sainsbury will continue to outperform the market in terms of sales momentum thanks to a successful customer proposition focused on good quality, fair pricing and high levels of service."

Richard Hunter, head of equities, Hargreaves Lansdown Stockbrokers

"Without question, this is a strong performance from a resurgent Sainsbury, even though clouds remain on the investment horizon.

"On the one hand, profits are at the very top end of estimates, the company continues to keep a close eye on costs, its non-food lines shore up its overall offering and the online and convenience store channels remain well placed to benefit from shifting consumer trends. The dividend yield of 4.1% is also punchy, especially given the interest rate environment, whilst very vague bid speculation is rarely far away.

"Less positively, the pension deficit remains a concern, even if it is moving generally in the right direction, whilst intense competition, rising commodity prices and the company's sole UK focus limits its scope for further expansion. In addition, the Qatari stake would weigh on the price if sold and, in any event, the shares are generally regarded to be trading at a premium valuation."

Sam Hart, retail analyst, Charles Stanley

"Sainsbury released a good set of interim results which were towards the upper end of market expectations. Subdued underlying sales growth and good control of operating costs, led to a slightly higher operating margin and healthy progression in earnings. We see potential for a small upgrade to our EPS estimate for the 2013/14 full year. The recommendation is maintained at 'accumulate'.

"We expect trading conditions in UK food retail to remain challenging over the medium term, with the consumer continuing to experience pressures and the competitive environment intense. Despite the challenging operating environment, however, we think Sainsbury can continue to deliver subdued growth in like-for-like sales, add new space and at least maintain a flat operating margin. As such, we forecast further steady growth in EPS and the dividend."

Deutsche Bank analyst Niamh McSherry

"Sainsbury's reported H1 profit 2% ahead of consensus. We consider Sainsbury's the safest UK food retail name to hold for investors wanting exposure to the UK consumer over the Christmas trading period. Today, we raise EBIT by 1% to reflect the updated guidance and leave our 13/14 and 14/15 EPS forecasts unchanged, at 3% and 7% ahead of consensus. We expect consensus to move toward our numbers.

"We view management comments that 'relative LFLs' are key for profitability as important in confirming two of our sector theses: 1) we do not expect a price war and related universal margin reset and 2) operating leverage will be the more important profitability driver in this environment."

Article updated at 09:39 GMT on 14 November 2013.