Broker snap: Jefferies keeps hold of Sainsbury

21st Mar 2012 10:42

Jefferies has maintained its hold rating and 310p target price for the UK's third-largest food retailer, Sainsbury, saying that it has the highest leverage/multiples and the lowest return on capital employed (ROCE) relative to its peers.The US broker said that the firm's strong fourth quarter sales (up 2.6% on a like-for-like basis excluding fuel) "confirmed the extent to which both extension activity and .com remain key drivers". If these were stripped out, the LFL sales would have grown by just 1%, the broker said.It says that with increasing densities the key to margin expansion, there is little upgrade potential for now, making sector peers Morrison and Tesco more attractive, trading at a 15% discount on 2013 earnings with sharply lower leverage."A more ROCE-disciplined approach to investments could improve the attraction," the broker said.Jefferies adds that Sainsbury has probably seen as the greatest beneficiary of customer defections from Tesco and so would be most exposed to improving performance by its rival as a result of improvements to its stores/services. "It would be unfair to explain all of JS's trading resilience through Tesco's shortcomings. However, standards in Tesco stores have slipped pretty drastically in recent years and an improvement in execution would not go unnoticed by shoppers."BC