Britain’s second-largest supermarket chain, J Sainsbury PLC (LSE:SBRY), appears to be undervalued in light of today’s trading statement, according to City brokers.
Sainsbury’s enterprise value ratios against sales and underlying earnings (EBITDA), which came to 0.35 times and 5.4 times respectively, are “too low for us”, said house broker Shore Capital Markets.
“There remains a lot to like about Sainsbury in an improved UK supermarket scene,” said Shore analysts, who gave the stock a 'buy' rating.
Analysts at UBS also dropped a 'buy' rating on Sainsbury’s stock with a 295p price target.
Weaker-than-anticipated general merchandise and Argos sales aside, “the strong grocery execution supports our view of the midterm margin upside”, said UBS.
UBS sees Sainsbury’s “delivering the strongest grocery sales growth out of the mainline grocers with ongoing net switching gains, and an increase in primary shoppers driving higher basket sizes”.
Sainsbury’s Taste the Difference range emerged as a hero product for the supermarket, with UBS noting a 14% year-on-year bump in sales.
Analysts were also impressed with Nectar extending its membership to 18 million, from 17 million the year prior.
The market was less favourably disposed to the results, with Sainsbury's shares sliding 1.6% on Tuesday.