Broker snap: Sainsbury must further step-up performance, says Credit Suisse

22nd Nov 2013 10:53

Sainsbury's shares edged slightly lower after Credit Suisse reiterated its 'underperform' rating on the stock.While the supermarket chain reported strong half-way figures last week, the broker warned of "only modest progress" in cash flow, margin and lease-adjusted returns, which are "most important to us in creating long-term shareholder value". "And these KPI [key performance indicators] could worsen if LFL [like-for-like] momentum is not sustained."The supermarket posted a 4.4% rise in sales and 7% increase in pre-tax profit in the first half, despite tough trading conditions. Sainsbury expects full year like-for-like in the 1% to 1.5% range and anticipates mid-single digit basis point margin improvement. Credit Suisse raised its target price from 285 to 345p, saying it predicts shares will hold-up so long as it continues to outperform its UK rivals. "The shares have outperformed recently which, given Sainsbury's recent H1 results and LFL/profit outperformance, is understandable," the analyst said. "But, we think a further step-up in performance and some material operating leverage is now required to justify a price above our 'steady-state' 345p scenario. And, if the business weakens, we see downside below 345p."Shares fell 0.15% to 404.20p at 11:11 on Friday.RD