Broker tips: Sainsbury, Pace, Rank

23rd Mar 2011 12:54

Financial services firm Matrix expressed disappointment over Sainsbury's weak trading statement, as the supermarket giant grew like for like (LfL) sales by less than expected during the fourth quarter.Sainsbury revealed slowing fourth quarter sales in the 10 weeks to 19 March, with an increase of just 1% (excluding VAT, including fuel), against consensus estimates of a 2% rise, representing a slowdown from the previous quarter which saw sales increase by 3.6%.Analyst Tom Gadsby notes that sales problems appear to be more of a Sainsbury issue, as a meeting with rival grocer Morrison yesterday suggested that it is not seeing evidence of a consumer slowdown. "The sector is off today, so we suggest picking up some Morrison on weakness." Sainsbury is given a target price of 337p.Somewhat more optimistic is RBS, which chipped in to say that while fourth quarter LfL sales were softer than it expected, it still believes that UK grocers can continue to "deliver profitable growth in pretty much whatever trading conditions prevail." However, the broker noted that the statement backed up its view on the industry right now in terms of subdued trading, which it expects to continue through 2011.RBS said food price inflation and fuel prices are "clearly having an impact on consumer spending and consumption patterns, let alone any other macro factors that suggest the UK consumer is in a fragile state right now."It gives Sainsbury its 'hold' rating, and a target price of 370p.After years of being on the wrong side of legislation, casino and bingo hall operator Rank is on a big winning streak, according to Peel Hunt, after the company won its largest value added tax (VAT) claim to date.Rank announced on Tuesday that it won yet another VAT claim against HM Revenue & Customs (HMRC), this time totalling £74.8m, covering overpaid VAT on games of bingo from 1973 to 1996. Interest of £79.5m is due later this month.While the HMRC has launched an appeal, the broker estimates that - assuming Rank gets to keep all the cash - it should have a cash surplus of over £40m by the end of 2011, wiping out around £110m of net debt."If it does pursue acquisitions we believe these are most likely to be in the areas of online gaming and casinos. Management has thus far been cautious and we do not expect it to embark on a reckless acquisition programme," said analyst Nick Batram.A 'buy' is retained, and the target price is upped from 160p to 179p.RBS thinks that the share price reaction to Pace's final results on 8 March was unjustified, and reiterates its positive stance with an increased target price.The broker keeps its 'buy' rating but raises the target price from 237p to 249p for the set-top box maker, as the share price is now around 30% lower than it was before the results were announced.Sentiment was hit after Pace said that a US customer had deferred a major order until next year when the next generation of equipment will be available.RBS, however, said that the 2010 pre-tax profits were 8% ahead of its forecasts, and the outlook statement points to broadly unchanged profit expectations in 2011.