Sainsbury: what the analysts say

Strong demand for its Taste the Difference range helped Sainsbury post its best ever sales in the run-up to Christmas , but analysts are divided about how well the company really did. Clive Black of Shore Capital Operationally we believe that Sainsbury was well set to cope with the challenges of global warming on the British climate in December. So, we are not aware of any great wastage issues or cost over-runs as a result of the ice; reflected in our profit expectations below. Within the business we note that non-food performed well with sales growing at three times the rate of the food business. Good event performances (eg Halloween) were reported whilst Sainsbury states that it is seeing strong growth rates in home and Electrical plus lingerie and clothing accessories sales were up 45% year-on-year. The cold weather probably helped the Convenience estate, which we believe is outperforming the main stores at present, whilst online sales are up by c25%; not that far short of specialist online retailer Ocado. Richard Hunter of Hargreaves Lansdown Stockbrokers Additional promotion of its higher margin products, along with the weather conditions tempting shoppers to buy more in fewer trips, played into the company's hands such that its performance could yet prove to be the best of the big four. Sainsbury's non-food sales lines continue to grow apace, whilst its prominent advertising campaigns perpetuate consumer awareness. From an investment perspective, the uncertainty surrounding the Qatari stake continues to be a positive (should a bid materialise) and a negative (should the stake be sold) in equal measure, which provides something of a conundrum for investors. On balance, the picture is neutral. The shares have had a strong run over the last year, having risen 19%, versus a wider FTSE 100 gain of 9%. This in turn has led to the shares beginning to look relatively expensive compared to some of its peers, with the market consensus being stuck at a hold. Dave McCarthy of Evolution Securities On the surface the headline numbers look acceptable and better than Morrisons's headline 1%. However, after stripping out VAT and the considerable extension programme, the two are growing at similar rates with Morrisons probably ahead. While Sainsbury's appears to be growing fast, the underlying momentum in the business looks overstated and we believe the market has yet to catch on to this. Kate Calvert of Seymour Pierce This performance seems to confirm the recent Nielsen and Cantar data which pointed to Sainsbury achieving the fastest growth of the major food retailers in the run up to and over the Christmas period and shows that it has overtaken Asda again to become the second largest grocer in the UK. While Sainsbury's is well-positioned to deliver double digit growth driven by new space, a more extensive extension programme than its peers and some operational leverage from having invested significantly over the last few years in building up its non-food and on-line capabilities, we believe this is already reflected in its premium sector valuation.