Date: Wednesday 13 Jun 2012
Sainsbury is in the doldrums after its first quarter update disappointed slightly, but Panmure Gordon argues the supermarket giant put in a decent shift, considering the miserable weather in April.
Like-for-like sales (excluding fuel) rose by 1.4% year-on-year, which was below the range of expectations, which ran from +1.5% to +2.2%.
"The truth is that Sainsbury is still doing better than Tesco, even after stripping out the Jubilee, extensions (which contributed 0.8%), non-food and anything else that you want to adjust for. Tesco is narrowing the gap, but it still has a lot to do and Sainsbury could continue to outperform," Panmure Gordon reckons.
The shares have come under some pressure of late due to slightly cautious guidance at the time of the release of its full year results. Sainsbury said that it expected this year’s operating profits would grow in line with sales and that dividends in future would rise in line with earnings, to maintain dividend cover.
"On the latter point, two things. First, we find a yield of 5.8% relatively attractive. Second, we expect the dividend to grow. Trading on the lowest EV [enterprise value]/sales among the majors (0.33x versus 0.52x for Morrison and 0.47x for Tesco), we think that the shares have upside," Panmure Gordon's Philip Doggan argues.
Panmure Gordon has a target price of 350p for Sainsbury.
With many reports suggesting that this year's Olympic Games in London will be a negative factor for hotels in the capital, Premier Inn owner's Whitbread's results next Tuesday are well timed.
With UK revenue per available room (revPAR) growth in the UK still subdued, Credit Suisse is not expecting the update to lead to earnings forecast upgrades for Whitbread.
"It seems unlikely consensus numbers will change after the Q1 [first quarter] update and we see greater upgrade potential elsewhere in the sector," Credit Suisse said, citing sector peers Accor and InterContinental Hotels Group as better picks.
Credit Suisse is neutral on Whitbread and has a target price of 2,000p.
finnCap has revisited its earnings forecasts for conveyor belt maker Fenner as it is now taking a more downbeat view on the impact of US coal activity on conveyor demand.
As a result, the group has chopped its target price from 585p to 450p, while retaining its "buy" recommendation, as the shares have already taken a battering over the last month.
"The shares have fallen in a weak market, but have also underperformed versus many of the company's peers," notes finnCap analyst David Buxton.
"We continue to see Fenner as a longer-term winner in the sector, with the benefits of investment and acquisition feeding through to market share gains and strong cash generation," Buxton added.
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