Nomura sees bounce for Morrison and Tesco after supermarket slip

5th Jun 2014 11:08

Broker Nomura has scrutinised recent retail data on the UK supermarkets and concluded that the slowdown was suffered by all of the Big Four grocers and that a bounce is likely later this year, with Morrison and Tesco set to benefit most. Fresh data from market researchers Kantar was "surprisingly weak" in the last couple of months, highlighted again by Tesco's first-quarter results this week. Nomura said the weak data, due primarily to weaker market growth, led analysts to forecast lower trajectories than previously thought for Tesco and Sainsbury, cutting its target prices for both by 4% and 5% respectively. "Looking at the UK Big Four altogether highlights for us that the slowdown the individual operators have suffered in recent months is actually generic, as inflation has come down, which is itself largely a function of the 'price investment' going in now we think," the broker said. "As such, if a price 'spiral' can be avoided - and we think it will be, as volumes naturally improve as discounter 'catchup' growth eases and space addition falls further - this effect is a one-off that will be annualised later this year." Analysts conclude that the Big Four as a group will see improving like-for-like (LFL) sales, towards zero again as they were just three quarters ago. Against that backdrop, Nomura thinks the operators making the largest and most recent investment - Morrison and Tesco - will see the biggest relative improvement, and will be at the top of the pack with small positive LFL this time next year.OH