Mindful Money’s shares watch: Morrisons, Barratt Developments, Sainsbury & Tesco

11th January 2016


While a number of companies are updating the market with their latest numbers this week, it’s the troubled supermarket sector which is likely to dominate proceedings.

Tuesday sees Morrisons report on its trading for the first nine weeks of its fourth quarter.

Like its main rivals the business has felt the brunt of stiffer competition from the so-called hard discounters including Aldi and Lidl and over the past year its shares have tumbled by 18%.

While brokers at The Share Centre have the firm down as a ‘hold’, the wider market consensus is a little more sceptical.

Keith Bowman, equity analyst at Hargreaves Lansdown Stockbrokers said that a fall in like-for-like sales similar to that seen in the third quarter, at -2.6% excluding fuel, may be reported.

He added: “Ongoing market share gains for discounters Aldi and Lidl and management’s deliberate decision to reduce the use of promotional vouchers may again impact.

“More favourably, the board’s emphasis on reducing costs and group net debt could be further reiterated, whilst its expectation for underlying profit before tax to be higher in the second half of the current financial year than the first potentially repeated.”

With both sales and profits under pressure, where current full year pre-tax profit is forecast to fall by over 10%, the analyst consensus opinion ahead of the update points towards a ‘sell’, noted Bowman.

Wednesday sees homebuilder Barratt Developments deliver its latest trading update. Given its shares have gained 31% over the past 12 months, ahead of the update the wider consensus indicates a ‘strong hold’.

Graham Spooner, investment research analyst at The Share Centre, has the shares down as a ‘hold’. He said: “While the performance of the sector has been exceptional over the last few years, management expressed some caution after its full year results, expecting trading to return to more seasonal norms.

“However, for the latest trading period investors can expect to see positive numbers with an increase in the number of homes sold, rising average selling prices and the forward sales to be encouraging. More details of special dividends should also be given.”

Sainsbury reports its third quarter sales update on Wednesday. Against tough year-over-year comparatives, like-for-like sales (excluding fuel) are likely to have remained in negative territory.

Spooner is calling the firm, which has seen its shares drop by 4% over the past year – and by 11% over three months a ‘buy’ but the wider market appears less bullish.

Bowman said: “Continued food deflation across many categories is likely to have played its part. On the upside, the consumer trend in favour of celebration treats may again assist, while the group’s emphasis on convenience stores further underlined – it opened 27 such stores in Q2.

“In all, and with the company’s recent interest in potentially buying non-food retailer Home Retail Group made public and adding to uncertainty, analyst consensus opinion continues to signify a ‘sell’.”

Tesco, down a steep 30% over 12 months, follows up with its third quarter and Christmas trading sales updates on Thursday. As with rivals, and aided by recent data from market researcher Kantar, UK like-for-like sales, excluding fuel, for both the third quarter and the Christmas period are likely to have fallen.

Bowman added: “Again, food deflation and the highly competitive pricing environment fuelled by discounters Aldi and Lidl are expected to have impacted. International sales are likely to have remained challenging, whilst a further underlining of management initiatives to improve company performance, including the closure of unprofitable stores, could be made.

“In all, and with declining profitability weighed against corrective action being taken by management, analyst consensus opinion currently points towards a strong hold.”

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