Mindful Money’s Monday share tips

29th September 2013

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FTSE 100 listed supermarket giants Tesco and Sainsbury are set to update investors this week, as is plumbing group Wolseley. We look at what the brokers are thinking writes Philip Scott.

Wolseley delivers its full year results on Tuesday, and the broker sentiment across share data hub Digital look has the stock edging towards a ‘buy’.

A 23% rise in its shares over the past year has Wolseley riding on a high and Sheridan Admans, investment research manager at stockbroker, The Share Centre is keen to see whether there will be more good news from the group’s US operations and the benefits from the improved situation for new home sales.

He says: “Other areas of interest will be group margins and cost cutting measures. Investors will also be hoping that operations in Europe have not deteriorated further. We currently list Wolseley as a ‘hold’.”

Wednesday sees Tesco and Sainsbury update the market with the former announcing its half-year results. The last six months have seen Tesco’s shares fall 4% but over the past year they have risen by 8%.

More seasonal weather in July is expected to have helped the UK’s biggest retailer report improved second quarter UK like-for-like sales compared to the first quarter.

But Tesco’s international operations are expected to pull profitability lower. Restrictions forcing reduced store time openings in Korea, a withdrawal from the US and ongoing highly competitive conditions in Europe are all likely to impact says Keith Bowman, equities analyst at Hargreaves Lansdown Stockbrokers.

Reported pre-tax profit for the period is forecast to materialise at around £1.59bn, a fall of nearly 4% year-over-year.

Bowman says: “Nonetheless, many of the recent difficulties for its International business are now considered to be behind it. Costs for its US exit have been outlined, whilst opening time comparatives in Korea will soon normalise.”

As such, analyst opinion prior to the results is currently favourable, pointing towards a ‘buy’ according to both Bowman and Digital Look.

Admans has it rated a ‘hold’ however, citing pressure on profits in the sector from discount retailers stealing a march in a weak economic environment.

He adds: “Other updates that will be welcome are the status of its US exit strategy, UK store openings and the progress of its banking and internet shopping business.”

The past year has seen Sainsbury enjoy a 13% share price rise with 10% achieved over just six months. Like Tesco, better weather in July should have delivered a boost to sales and unlike Tesco it does not have an overseas operation to concern itself with.

As such in its second quarter trading update, it is expected to report another solid like-for-like sales gain. Bowman says: “The group’s mid to upper market reputation, away from the competition intense discount arena, along with its southern UK geographical bias, are again both expected to assist performance.”

Ahead of the statement and with the shares already considered to be trading at a valuation premium to rivals Tesco and Morrison, analyst opinion currently denotes a ‘hold’ according to Bowman.

Digital Look and Admans concur. Admans says: “Sainsbury’s posted a good set of full year results and gained market share so investors will be hoping for more of the same. News on the strategies that management may consider as the competition on the sector increases will be of interest, especially as Tesco begins to focus on the UK market once more.”

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