Broker snap: Investec upbeat on Sainsbury, but not the wider sector

7th Jun 2013 11:33

Investec expects a strong first-quarter update from supermarket group Sainsbury next week, but has retained its 'hold' rating for the stock amid concerns about the wider sector.Following a decent fourth-quarter performance - with total sales up 6.3% excluding petrol and like-for-like (LFL) sales up 3.6% - the broker thinks that this momentum has continued. The first-quarter statement, due on Wednesday June 12th, should show a 4.5% increase in total sales and a 2.0% improvement in LFLs, better than the 0.8% LFL sales decline reported by rival Tesco this week.Nevertheless, Investec admitted that figures are likely to be held back slightly due to comparisons with the extra bank holding last year because of the Diamond Jubilee as well as a lower contribution from extensions."Our forecasts are probably higher than consensus, but Sainsbury has momentum and appears to be taking share from Tesco at an increasing rate," said analyst Davie McCarthy. Sainsbury is continuing to invest in space while Tesco has called an end to extension plans for now."Sainsbury is our favoured stock in the sector, but sector concerns on long-run profitability restrict our recommendation to 'hold'," McCarthy said, saying that the sector is in the middle of a "major structural transition".The target price for the stock remains at 375p.The share price was down 1.54% at 357.7p by 11:32 on Friday.