Mindful Money’s Monday share tips: Sainsbury, ASOS, Home Retail Group & Mulberry

9th June 2014

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Given the torrid week the UK’s supermarkets have just endured following Tesco’s disappointing update all eyes will be on Sainsburys when it publishes its latest numbers on Wednesday.

The meteoric rise in popularity of German hard-discounters Aldi and Lidl has put immense pressure on Britain’s ‘Big Four’ supermarkets in recent years as competition in the sector has intensified.

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However ahead of its first quarter trading results, analyst opinion currently points to a ‘hold’. Notably after a decade in charge of the business, chief executive Justin King will step down at the group’s AGM in July. Keith Bowman, equity analyst at Hargreaves Lansdown Stockbrokers says that under King’s ‘Making Sainsbury’s great again’ strategy, the supermarket has made progress and transformed the business and culminated in delivering a 5.3% increase in underlying profits for the full year to March, and a market share that remains at its highest level for a decade.

Bowman adds: “Nonetheless, the UK grocery market remains fiercely competitive. The group continues to emphasise its differentiated offering and underlining that price is not the only customer influence, yet it is not immune from the activity that is taking place in the market. In all, while the economy is showing signs of improvement, an element of caution persists as conditions within the food retail sector are likely to remained challenged for the foreseeable future.”

Sheridan Admans, investment research manager at The Share Centre, who against the tide is calling the shares a ‘buy’, adds: “Areas of interest for investors will be comments from Sainsbury’s on the UK consumer, the position the group is taking on price cutting and any further cost saving opportunities.”

On Tuesday FTSE AIM 50 listed online retailer ASOS unveils its third quarter results. The business has witnessed its shares collapse by 50% in the past three months as the recent sell off in growth stocks hit home but the market consensus has the shares rated a ‘buy’, with analysts at both Deutsche and Jeffries, having just reiterated positive recommendations on the firm.

Ahead of the update, Admans who is calling ASOS a ‘hold’, comments: “The market was concerned by a slowing of sales and lowering of forecasts in their last update. Investors should note that currency issues and the effect of investing for future growth could continue to impact the group in the short term. Investors will be looking for reaction on the outlook for consumer trends, as well as an update on international operations.”

Thursday sees Argos and Homebase parent Home Retail Group, release its first quarter update. The FTSE 250 listed retailer unveiled a strong set of full year results back in May across both businesses which saw like-for-like sales growth achieved throughout the year. Over the past 12 months it has enjoyed a 26% share price rise and analyst opinion currently points to a ‘hold’.

Bowman says: “As part of its self-help plan, announced in October 2012, it has made a number of advancements to its digital proposition and a wider product range to appeal to more upmarket customers. It targets 75% of sales online by 2018, with ‘click and collect’ likely to be the predominant channel. Strategically, Home Retail has made good progress however management remain mindful that traditional shopping habits are changing, while group investment increases costs and therefore acts as a drag on profits.”

Another FTSE AIM 50 member, Mulberry, also updates the market this week, with its preliminary results, on Thursday.  The shares, down 31% in the past year have stabilised recently, after firming 8% in the past three months and the market presently has them labelled as a ‘hold’. Admans, whose own view is in line with the consensus, says: “Key to the businesses fortunes is the demand from Asian consumers which, due to the slowdown in Asia, has not been as great as expected. Investors should be reassured that the company is still pursuing international expansion so that it can be less reliant on the UK and Europe.

“The Christmas trading period was disappointing due to heavy discounting by competitors and investors will hope that discretionary spending will have been boosted by improving overall economic climate in the UK.”

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