UBS has raised its price target on J Sainsbury PLC (LSE:SBRY), the UK's second-largest supermarket chain, to 372p from 365p and reiterated its 'buy' recommendation, arguing the group is winning the battle for customers against rivals including Asda while remaining attractively valued ahead of full-year results on 23 April.
The Swiss bank said Sainsbury's had improved its net promoter score, a measure of customer loyalty, to the point where it now sits marginally ahead of Lidl among major UK grocers, with only Tesco rated higher overall.
Proprietary consumer research conducted by UBS Evidence Lab, the bank's data analytics unit, found Sainsbury's ranked third among all supermarkets for price perception, with 18% of shoppers surveyed naming it as offering the most attractive prices, a position it has held while rival Asda has lost ground despite its high-profile Rollback pricing campaign.
UBS forecasts full-year group retail earnings before interest and tax of £1.025 billion, broadly flat year on year, with grocery volume growth and cost savings helping to absorb exceptional cost inflation and competitive pressure from Asda.
The more significant opportunity, the bank argues, comes in the financial year to March 2027, which it describes as the key year for delivering the profit leverage promised under Sainsbury's three-year Next Level strategy.
UBS is modelling £1.065 billion of retail operating profit in 2027, supported by continued volume growth and around £300 million of cost savings from the Save to Invest programme, and expects the company to generate more than £500 million of free cash flow from that year, money it anticipates will be returned to shareholders.
The shares, which have risen 29% over the past year, trade at around 13.5 times forward earnings, slightly below their long-term average of 14 times and at a 3% discount to the FTSE 100, compared with a historical premium of 10%.
UBS said the combination of market share gains, free cash flow generation and a valuation that still looks undemanding relative to history left the risk-reward clearly skewed to the upside.
The shares were flat at 334p.