J Sainsbury PLC’s (LON:SBRY) shares rose on Wednesday as Berenberg increased its price target to 369p from 295p and kept ‘buy’ rating, amid the supermarket's potential merger with Asda.
In a note to clients, analysts at Berenberg said Sainsbury’s potential merger with Asda would improve its investment case in all aspects, with significant gross synergies to underpin margin and revenue growth beyond the near term.
Read: Former Asda exec says competition watchdog should block Sainsbury’s merger
The analysts said: “Management is guiding for £500m synergies net of disposals and reinvestments. We believe that the gross synergies number could be as high as £1.5bn, with significant upside in food and non-food sourcing and cost efficiencies.”
They added: “In this context, potential EBIT dis-synergies from store disposals are relatively insignificant and we believe risks relating to Competition & Markets Authority (CMA) approval of the deal are overestimated.”
Sainsbury and Asda announced their proposed merger last week. If successful, the merger will create one of the largest grocery, general merchandise and clothing retailers in the UK, both in terms of store-based sales and e-commerce.
In lunchtime trading, Sainsbury’s shares rose 1.4% to 299.50p.