Mindful Money’s weekly shares watch: Sainsbury, Next & Berkeley Group

16th March 2015

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Following last week’s disappointing update from Morrison, Tuesday sees supermarket competitor Sainsbury publish its own fourth quarter results.

Looking ahead to the report Sheridan Admans, investment research manager at broker The Share Centre highlights that investors will be keen to see how investment in price incentives, its Netto partnership and the benefits of lower fuel costs to the consumer are helping the retailer to “combat the challenges faced by the discount chains, food price deflation and a cost sensitive consumer”.

However, Kantar which monitors household grocery purchasing habits recorded that Sainsbury’s has seen its market share slip from 17% to 16.8% over the past 12 weeks, mainly to competition from the hard discounters such as Lidl.

Admans, who has the shares on his ‘buy’ list says: “Investors will also be looking for how the group’s product and service diversification stacks up compared to the discounters and what impact cost savings is having.”

Keith Bowman equity analyst at Hargreaves Lansdown Stockbrokers notes that full year profit is currently forecast to fall by around 17% to £662m on a consensus analyst basis, with an expected reduction in the dividend, as already flagged by management, estimated by analysts to be in the region of 20%. He says: “Ahead of the announcement, and with the group’s differentiated offering and management initiatives weighed against falling profitability, analyst consensus opinion currently points towards a ‘hold’.”

On Thursday High Street giant Next unveils its full-year results. The business, which has enjoyed a 12% share price rise over the past 12 months, has already steered the market on full-year profits, which are expected to be around £775m, so the main focus for investors will be on sales since the last trading update in December.

Admans, who rates the shares a ‘hold’, says: “The announcement of a further special dividend in February was well received however, the company stressed that this was due to the strength of its share price rather than a reflection of an improvement in its current trading position. Recent sales data has suggested better trading at discount and luxury retailers so investors will be interested to see if that is reflected in Next’s results.”

Bowman says tough spring and summer 2014 comparatives, given unusually warm weather, currently leave management projecting full price sales growth in 2015/16 of between +2.5% and +7.5%, with the first half expected to perform at the lower end of the range. He says: “Prior to the release, analyst consensus opinion currently denotes a hold.”

Berkeley Group follows with its latest interim management statement on Friday. Undoubtedly the market will be eager to hear from the housebuilding group as to whether demand for its properties remains as strong as it was at the time of the last update in December.

Admans, who in line with the market consensus, is calling the stock a ‘buy’ says: “Investors will also be interested in any comments about future dividend payments, although the company has previously said it is confident of being able to pay another 90p dividend as part of its longer term capital repayment scheme.”

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