Broker snap: Jefferies warns of strong comps for Sainsbury this summer

12th Jun 2013 10:07

Jefferies has retained its 'hold' rating for Sainsbury saying that strong prior-year comparatives for the supermarket group may present problems in the coming months.The first-quarter trading statement from Sainsbury on Wednesday showed like-for-like (LFL) sales growth of 0.8% (excluding fuel). This was ahead of Jefferies' 0.7% forecast and was a "solid-enough start to the year".However, the broker highlighted that this was sharp deceleration from the 3.6% LFL growth enjoyed in the fourth quarter of the preceding year."The comping of last year's Diamond Jubilee weekend has certainly been an unhelpful feature, with Sainsbury trading the major events of the 2012 British summer particularly well. This is a challenge which will continue in coming months," Jefferies said.Nevertheless, the broker noted that the company is still performing well when compared to rival supermarket chains as it continues to outperform on LFL momentum, "albeit by a much reduced rate in Q1 versus Q4".The broker said: "On our estimates the shares are trading on a c.15% premium to UK peers. We do not believe absolute valuation levels are necessarily irrational at Sainsbury, but that the market is not putting the right emphasis on either free cashflow prospects or potential for sales momentum improvements at the group's UK peers. "We would invest elsewhere at a time when the group's effort on new space expansion continues to distinguish it from peers."The broker's 330p target price for the stock represents a 20% discount to its net present value estimate of 410p, equal to a calendar 2014 price-to-earnings ratio of 10.3.