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Broker Spotlight

Broker Spotlight brings some of the more intriguing and topical analyst coverage to centre-stage. The daily column aims to illuminate thoughts and opinions behind the big stories. London is one of the financial capitals of world. The influential and closely followed views of its analysts regularly move markets and split opinion. The Broker Spotlight column arms Proactive readers with the added insight from the often colourful thoughts and headline-grabbing valuations from the City’s analyst community.

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Broker Round-up: Sainsbury’s, Tesco, Associated British Foods, SuperDry, Glencore, Xstrata

April 16 2013, 11:18am

 

Sainsbury’s (LON:SBRY) is the only supermarket stock worth owning.

That’s the view of food retail analysts at Morgan Stanley, who would rather go hungry than buy shares in the sector.

Analyst Edouard Aubin has ‘underweight’ ratings out on Britain’s biggest supermarket Tesco (LON:TSCO), as well as Morrisons (LON:MRW), the third biggest of the UK-listed grocers.

Aubin reckons the space race is not over for the food retailers, with the battle still on to boost capacity to sell more stock.

He notes that last year some hinted at an end to the fight for bigger supermarkets, but while Tesco said it was cutting its selling space, it turned out this was in the clothing aisles rather than the food sections.

“Given a still healthy expansion at competitors Sainsbury and Morrisons - not to mention Aldi or Lidl - we calculate that the ten largest grocers will grow their grocery selling space by c.+4% on aggregate in both calendar 2013 and 2014, far higher than most other European markets, and likely far higher than grocery volumes,” the analyst said.

“Overall, we view the UK food retail sector as unattractive, with the exception of Sainsbury, which we rate as Overweight given its differentiated strategy,” he added.

Oriel Securities’ analysts, however, prefer Tesco, calling it the best mid-term pick in the sector.

Tesco is a core holding but material upside from 385p is unlikely whilst LFL remains becalmed,” says analyst Jonathan Pritchard.

Sainsbury’s now prices in solid delivery of forecasts and market share gains, so upside is capped. There’s progress from Morrisons on some counts but lack of LFL momentum will hold that one back too.”

Credit Suisse would now hold on to shares in Associated British Foods (LON:ABF), having advised its clients before to buy them.

It is time, though, for a pause for breath despite the long-term story still looking “very good”. Primark profit growth looks strong, but the broker doubts whether the knock-off clothing chain can keep up the impressive like-for-like sales seen in the first half of the year.

Credit Suisse’s price target rises to £18.50 from £16.50.

Canaccord Genuity just can’t get enough of SuperDry brand owner SuperGroup (LON:SGP).

The fashion company has just ploughed £5mln into a new giant distribution centre, which Canaccord hailed as “hugely significant”.

“There are a number of key points but none more than the size of the facility suggests that SuperGroup’s growth ambitions far exceed our forecasts,” the City firm said.

The deal to tie up Glencore (LON:GLEN) and Xstrata (LON:XTA) is all but done, according to UBS analysts, as the duo wait on approval from China to create the world’s biggest mining group.

Today, the broker added them to its ‘key calls’ list. The market could be underestimating the ‘Glasenberg factor’, said analyst Myles Allsop, referring to the Glencore chief executive Ivan Glasenberg.

Liberum Capital tipped Vodafone (LON:VOD) shares to dial up as it stuck by its ‘buy’ recommendation and 210p target price on the mobile phone giant.

The City broker believes prospects for European mobile consolidation are improving, with mobile valuations stabilising in Europe.

“Further significant upside now requires either firm developments around European mobile consolidation or a knock out bid for the Verizon Wireless stake.”

Neither is implausible in Liberum’s view.

Citigroup tipsters see Peroni and Grolsch brewer SABMiller’s (LON:SAB) sales growth slipping to just 4% in its upcoming quarterly numbers. But Morgan Stanley says take no notice, as it claims the brewer’s sales growth will hit 7%.

 

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