HSBC has cut its target prices for the UK-listed food retailers in the wake of Amazon.com Inc’s (NASDAQ:AMZN) surprise US$13.7bn takeover of Whole Foods Market Inc (NASDAQ:WFM), seeing the biggest impact on sentiment, while warning off investors from second-guessing the internet retail giant's possible UK plans.
In a note to clients, the bank’s analysts said: “We could argue that the impact of Amazon will be very long term, that it might not be successful in its venture or that the same strategy will not be exported to the UK – and we might be right.
“But right now sentiment seems to be creating a self-fulfilling prophecy and the shares are showing weakness.“
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They added: “It is hard to see how this circle will be broken short term and along with increased risks, is leading to reductions to our target prices. “
The analysts kept a ‘buy’ rating on UK supermarket leader Tesco PLC (LON:TSCO) but cut its target price to 225p from 260p.
They retained ‘reduce’ ratings on J Sainsbury plc (LON:SBRY with a lower target price of 200p, down from 205p; on William Morrison Supermarkets PLC (LON:MRW) with a reduced target of 190p, down from 200p; and on Ocado PLC (LON:OCDO, with a lower target of 180p, down from 200p.
The analysts pointed out that while there remains a fear of Amazon entering the UK, the food retail sector is likely to remain depressed.
No second-guessing on Amazon’s plans
They added that many investors will want to avoid investing in such a now-risky sector, although on the other hand, some investors may think about second-guessing whom Amazon might buy in the UK
However, they said if they got it wrong and sold the actual target - if there was one - that investor would “suffer a double impact of holding a falling stock, and having sold a rising one.”
The analysts said: “It is easy to conclude that if Amazon bought in the UK that it would be Morrisons, but this might not necessarily be the case.”
They added: “it could be one of several retailers. It could even be ASDA (although we think it unlikely that Walmart Inc (NYSE:WMT) would want to aid Amazon’s growth and knowledge in food retailing.”