UK food retailers initiated by Credit Suisse

17th Jun 2015 07:33

Credit Suisse initiated coverage of UK food retailers with a negative stance on the sector, saying it sees few opportunities within a group that has historically misallocated capital, is faced with extreme competitive pressures and operates in a low-growth environment.The bank started Tesco and Sainsbury at 'underperform' with price targets of 169p and 219p, respectively. It initiated coverage of Wm Morrison at 'neutral' with a 176p price target.It said like-for-like sales continue to be negative at all three companies, but margins are declining even faster. "We see no obvious path back to recent margin levels," said CS, adding that Morrison is relatively better positioned is due to its more homogeneous store estate, higher freehold levels and opportunities to resolve its internal issues.It said that Tesco and Morrison have borne the brunt of rising competition. "New CEOs have carte blanche to enact changes, but both are faced with a multitude of internal issues as well as a difficult trading environment," noted CS.Credit Suisse started Ocado at 'outperform' with a 466p price target. It said Ocado is a market leader in the only part of mainstream grocery that is growing strongly. "We expect advancements in many areas of its business to improve gross margins, as well as additional third-party sales of its fulfilment technology," said CS.