French blue chip broker Kepler Cheuvreux has started its coverage of J Sainsbury PLC (LON:SBRY) with a ‘hold’ recommendation.
Margins at all of the food retailers have come under pressure over the past 18 months or so as the pound’s post-Brexit fall raised import costs.
READ: Sainsbury's on the back foot as it lowers interim dividend and posts profit decline
Kepler food retail analyst Fabienne Caron says a “stronger focus on cost savings” should see margins stabilise in the core Sainsbury’s business over the coming months.
He still has concerns over Argos, which Sainsbury’s acquired last September, given the “challenging” UK consumer environment as above target wage growth and anaemic wage growth put a squeeze on public spending.
That said, he thinks a lot of the headwinds are priced in, although he still sees “limited upside” at the moment.
READ: J Sainsbury more at risk than peers from downturn in UK economy, reckons Jefferies
“A continued decrease in discretionary spend and uncertainties related to Brexit are likely to continue to weigh down the stock,” Caron wrote in Wednesday’s note.
Alongside his ‘hold’ rating, the analyst kicked off his coverage with a 252p price target which implies a 5% upside.
Sainsbury’s shares edged 0.4% higher to 238.5p on Wednesday morning.