UBS optimistic on UK supermarkets, 'buys' Tesco, Sainsbury and 'sells' Morrisons
Rather than fighting on price, UBS declared in its 'initiation of coverage' on the European food retail sector after its Evidence Lab undertook a large consumer survey in the UK, "the future is about differentiation".
Booker Group
224.00p
16:40 02/03/18
CAC 40
8,047.29
10:44 25/04/24
Carrefour
€15.62
10:44 25/04/24
Food & Drug Retailers
3,918.14
10:44 25/04/24
FTSE 100
8,090.24
10:45 25/04/24
FTSE 250
19,726.98
10:45 25/04/24
FTSE 350
4,443.59
10:45 25/04/24
FTSE All-Share
4,397.18
10:45 25/04/24
Morrison (Wm) Supermarkets
286.40p
16:55 26/10/21
Ocado Group
370.10p
10:45 25/04/24
Sainsbury (J)
262.80p
10:45 25/04/24
Tesco
290.80p
10:45 25/04/24
Overall, the earnings outlook for the European food retailers is "better than it was", with price competition set to ease, analysts think, as the grocers "become more rational, and focus on differentiation and price perception".
Furthermore, the space race is slowing, which, combined with some early signs that the discounters are becoming capacity constrained, gives for a particularly positive reading for the UK.
The Swiss bank proceeded to issue a 'buy' rating on Tesco, Sainsbury's and Ocado and France's Carrefour, together with and a 'sell' recommendation for Morrisons and Booker in the UK and Germany's Metro.
"Given our positive stance on the UK, we like Tesco and Sainsbury's, but we think Morrisons needs to invest more than consensus models.
"We think Ocado's unique business model is worth supporting. Carrefour has more recovering to do in France and we think Brazil is under-appreciated."
Finally, on the cash and carry subsector, UBS said it worried that Metro's margin in Russia, at around 10%, is too high, and think market expectations for Booker's earnings are too high as well.