Sainsbury's beats forecasts, but ShoreCap stays at 'sell'

17th Mar 2015 09:42

Sainsbury's surpassed City expectations on Tuesday with a less-than-feared fall in like-for-like (LFL) sales in its fourth quarter, though that wasn't enough to change Shore Capital's 'sell' rating on the stock.The grocer said LFL sales excluding fuel were down 1.9% in the final three months of its financial year, much better than ShoreCap's own -3.3% forecast.However, the broker warned of a potential "Lewis iceberg in the waters" in regards to strategic plans by new Tesco chief executive Dave Lewis as he attempts to improve fortunes at the UK's biggest supermarket.ShoreCap analysts Clive Black and Darren Shirley said Tesco is "gradually regrouping" and Sainsbury's would be particularly negatively affected by a sustained better performance from Tesco."Improving real incomes in the UK may be a welcome boost to the group, as may favourable comparatives at an industry level from a volume perspective and the scope for Sainsbury's, perhaps, to capture any trading up that may occur should economic growth boost overall consumer expenditure," they said."However, such factors are still relegated to a hope over an expectation at this stage given [...] deflation, ongoing competitive intensity and Sainsbury's loss of market share. We continue at this stage to forecast falling [profits] over the next two years and we look for an end to the downgrade cycle before re-visiting our recommendation on Sainsbury's shares."The stock was up 1% at 271.4p by 10:15, while rivals Tesco and Morrisons dropped 1.5% and 1% respectively.