Exane BNP downgrades Tesco, Sainsbury
Exane BNP Paribas downgraded Tesco and Sainsbury on Friday as it took a look at food retail, leaving it with no buys in the UK.
Food & Drug Retailers
3,705.02
17:10 19/04/24
FTSE 100
7,895.85
16:59 19/04/24
FTSE 350
4,341.08
17:09 19/04/24
FTSE All-Share
4,296.41
17:08 19/04/24
Sainsbury (J)
258.80p
16:40 19/04/24
Tesco
281.40p
16:59 19/04/24
The bank cut Tesco to ‘underperform’ from ‘neutral’ and pushed the target price down to 175p from 200p pointing to a high risk of de-rating given a building risk that inflation isn’t fully passed through to the shopper, a tougher industry volume outlook and nothing in its recent consumer survey to prove volume growth is a given.
“Though Tesco has made good progress so far, we would remind it is in essence a hypermarket player twice the size of its nearest competitor in the UK.”
Exane downgraded Sainsbury to ‘neutral’ from ‘outperform’, keeping the price target at 255p.
“With our target price now a little below the current share price and a building risk cost inflation isn’t passed through to the shopper smoothly, we cut our rating,” it said.
Exane noted Sainsbury is still the least-loved UK food retailer. It’s at a marked discount to Tesco and Morrisons, amid ongoing scepticism that the group can hold, let alone grow margins.
“We think pockets of the market are still too bearish but the valuation now better captures the story.”
On food retailers more generally, Exane said it reckons 2017 will be tougher for volumes, with higher food inflation likely to take a bite, along with ongoing discounter/online headwinds.
In addition, it said wage inflation will persist and having already adjusted shift patterns and premiums, there are fewer options to offset the pressure.
At 1133 GMT, Tesco shares were down 1.7% to 199.20p and Sainsbury was down 1.5% to 263.90p.