Sainsbury Shares: ‘There Remains A Lot To Like’ Says Shore Capital

Sainsbury (LON: SBRY) released its first-quarter trading statement on Tuesday. The statement revealed a 4.2% increase in sales year-on-year and a 3% rise in like-for-like sales, prompting positive commentary from at least one analyst.

However, the supermarket giant's stock dropped by almost 3% following the news on Tuesday, closing just above 250p per share as investors reacted negatively to the general merchandise and clothing sales decline of -4.3%, and Argos sales falling -6.2% amid poor early summer weather and strong sales during the same period last year.

The stock has managed to regain some of those losses from Tuesday, currently up 0.8% at 252.4p at the time of writing on Wednesday.

Despite that share price fall, analysts at Shore Capital said Sainsbury (a House Stock at the firm) showed “more excellent grocery progress.”

“Commendably, volume driven Grocery share gains continue,” wrote the investment research firm, highlighting the results came against very tough comparatives. The firm noted the non-food anniversaries will start to ease.

“With this good in-line update, we do not adjust our FY25F PBT estimate with no change to guidance; no consensus adjustment is expected,” explained Shore Capital. “Sainsbury equity trades on EV/sales and EV/EBITDA ratios of 0.35x and 5.4x respectively, which is too low to us, a FCF yield of >8% is also attractive, as is the forecast 5.1% dividend yield (FY25F PER is 11.9x).”

Overall, Shore Capital feels that “there remains a lot to like about Sainsbury in an improved UK supermarket scene.”