Sainsbury beats forecasts, but Shore Capital still recommends a 'hold'

12th Nov 2014 11:03

First-half results from grocer J Sainsbury were ahead of market forecasts, but analysts at Shore Capital decided to stay on the fence on the back of continued uncertainties facing companies in the sector.Underlying pre-tax profit totalled £375m in the 28 weeks to 27 September, down 6.3% year-on-year, but well ahead of Shore Capital's £324m estimate and the consensus forecast of £351m.The company also unveiled the results from its all-important strategic review, which includes a £150m investment in price cuts, lower space-growth plans, and revised guidance for more cost savings and lower capital expenditure."Despite the greater visibility on Sainsbury's strategic plans, we continue to believe that much of Sainsbury short-/medium-term earnings prospects will remain dependent upon the magnitude of the much-anticipated Tesco price/margin reset," said Shore Capital analysts Darren Shirley and Clive Black."Whilst we applaud Sainsbury's greater capital discipline, the focus on debt reduction and strengthening the group's balance sheet, we struggle to forecast future years with confidence. We therefore retain our neutral 'hold' stance."On a positive note, the supermarket retained its interim dividend at 5p per share, much better than the 3.25p per share that Shore Capital had pencilled in.The company said it would fix its dividend cover at 2.0 times underlying earnings for the next three years which, when considering estimated profitability, will mean that this year's full-year payout will likely be lower.Nevertheless, Shirley and Black said that "the dividend stream may be expected to be more resilient than we had forecast".The stock was down 4.6% at 256.7p by 11:19.