Tesco received a boost from the financial community today (27 March) with some City analysts arguing the UK’s largest retailer is a more attractive investment than buoyant rival Sainsbury’s.
Earlier this week, industry watchers praised Sainsbury’s , the UK’s third-largest grocer, after it reported accelerating sales growth during the last three months.
In the three months to 21 March, Sainsbury’s like-for-like sales excluding fuel were up 6.2%, compared to 4.5% growth during the company’s third quarter to 3 January.
Tesco, meanwhile, has seen sales grow – but at the slowest pace of the UK’s so-called Big Four supermarkets.
According to the latest TNS figures, Tesco’s sales rose 5% during the 12 weeks to 22 February. Over the same period, Sainsbury’s sales climbed 5.7%, according to TNS.
Nevertheless, some analysts have argued that Tesco remains a better long-term investment. Henk Potts, equity strategist at Barclays Wealth Management, believes Tesco’s better value offering and presence in international markets gave it the nod over Sainsbury’s.
“It’s fair to say the news from Sainsbury’s was reasonably robust – certainly much better than the market was anticipating. There’s no doubt that its focus in improving its value message is starting to resonate with cost-conscious shoppers,” Potts told financial website cantos.com.
“However, an awful lot of good news is already priced into Sainsbury’s share price. It trades at a premium compared to some of its major competitors. We do know that competition is going to be very tight during the course of 2009. There’s an element of the market that believes that Sainsbury’s will struggle to maintain that like-for-like sales growth throughout the rest of the year.”
Potts added: “We’d be more confident in terms of investment within Tesco. As value moves up the agenda, Tesco has got a much stronger proposition than Sainsbury’s. On a valuation ground, the fact you’ve got international diversification with Tesco, and it’s cheaper, makes it a better alternative within the market.”
Shore Capital’s Clive Black said he “broadly agreed” with Potts’s sentiments. “Sainsbury’s performance has well exceeded our expectations and, if you were looking at a more defensive stock, you would favour Sainsbury’s or Morrisons over Tesco,” Black told just-food.
“But, Tesco is positioned to enjoy more meaningful and diverse growth and its shares still trade at a material discount to Sainsbury’s.”
However, Black cautioned that Tesco’s international presence meant the retailer was more vulnerable to the global nature of the downturn.
“Tesco is exposed to problems in Eastern Europe and it’s exposed to the US housing market through Fresh & Easy,” Black said. “Tesco is probably facing more challenges today than it has done for many years.”