J Sainsbury PLC (LON:SBRY) shares were trading higher as it welcomed a potential business rates holiday and was upgraded by Shore Capital to a ‘buy’ rating.
Investors were probably also reading across from rival Morrisons which reported a surge in sales in the past two weeks as shoppers stock up due to coronavirus fears, with a 5% rise year on year.
On Wednesday the company said it was changing the way its supermarkets operate to cope with the impact of coronavirus, including allowing only elderly and vulnerable customers to shop in the first hour of trading from Thursday onwards.
The FTSE 100 group is also rationing shoppers purchases to only three of any grocery item and a limit of two purchases of more essential lines like toilet roll, soap and UHT milk.
From that day, cafes and meat, fish and pizza counters will be closed to “free up warehouse and lorry capacity for products that customers really need” and make more store staff available to stack shelves.
Overnight, Chancellor of the Exchequer Rishi Sunak said the government will be “giving all retail, hospitality and leisure businesses” a 100% business rates holiday for the next 12 months.
Sainsbury’s said it was awaiting further clarification on the details of this change, to confirm supermarkets would be included, as the group paid annual UK business rates of £567mln in its last published results, of which around £500mln relates to stores.
“Should such rate relief apply to UK supermarkets, then they will all gain a notable cash flow benefit, in Sainsbury’s case effectively bringing forward de-leveraging plans by two years,” said analysts at Shore Capital.
The analysts said they believes that Sainsbury’s earnings are “better underpinned in the nearterm” and so can foresee potential 2020 and 2021 profit upgrades, stronger cash flows, better solvency ratios and so near-term stock market outperformance.
Hence, the broker’s recommendation was upgraded on the lowly rated shares, to ‘hold’ from ‘buy’.