Monday 8 June 2015

Mindful Money’s weekly shares watch: Sainsbury, Home Retail Group & RPC

Otmane El Rhazi from Mindful Money » Shares.

The UK’s embattled supermarket sector will be back in the spotlight again this week when Sainsbury updates shareholders with its first quarter trading numbers on Wednesday.

The nation’s main players in the industry have endured a far tougher time in recent years following the rise of the so-called “hard-discounters” such as Aldi and Lidl.

Over the past year, Sainsbury has endured a 24% share price drop given the more difficult environment and recent data from market research group Kantar has pointed towards a sixth consecutive fall in like-for-like sales at the group.

Looking ahead to this week’s report Keith Bowman, equity analyst at Hargreaves Lansdown Stockbrokers highlights that a decline in the region of 2.3%, excluding fuel, is forecast, “again impacted by intense competition and ongoing product price falls”.

Sheridan Admans, investment research manager at The Share Centre, which has the supermarket down as a ‘buy’, adds: “The ongoing price war amongst supermarkets in order to combat the challenges they are facing from the likes of Aldi and Lidl has put pressure on margins and profits. Investors will be monitoring own brand sales growth, cost savings and online operations.”

On a more positive note, Bowman says management may once more underline initiatives such as its ‘Value Simplicity’ programme and product quality, whilst likely progress for both its convenience stores and online sales could further feature.

He adds: “In all, and with the company’s differentiated offering set against falling profitability and lingering concerns for the balance sheet, analyst consensus opinion continues to point towards a ‘sell’.

Tuesday sees plastics packaging firm RPC will unveil its full year results. The FTSE 250 group’s shares have continued their steady upward momentum since the company’s last trading update at the end of March, as its financial year was coming to a close. Admans, who has the group on his ‘buy’ list says: “At that point RPC was on track to meet full year forecasts for its revenues, as well as adjusted operating profits, and it raised expectations for the level of benefit it might extract from its recent £307m acquisition of European plastic packaging group Promens.”

But while the firm’s shares are up 9% over one-year and by 16% over six months, brokers are expecting more gains to come, as the analyst consensus is pointing to a ‘strong-buy’.

Admans says: “Investors should focus on all of these factors in the final results announcement, as well as any comments about the outlook for sales and profits in the 2015/16 financial year. The consensus forecast among analysts is for pre-tax profits for the year to March 2015 of £112m, up 28% on the previous year.”

Argos and Homebase owner Home Retail Group deliver its own first quarter trading statement on Thursday. Over the past 12 months its shares have dropped by 17% and Bowman notes the upcoming sales update comes against tough year-over-year comparatives, given last year’s good spring weather and resulting strong performance for seasonal products at both Argos and Homebase.

He says: “Further updates with regards to both management’s early move to reduce its DIY Homebase outlets and its Argos Transformation Plan may feature, whilst initial guidance in relation to current full year profits will be watched for.”

Prior to the update and with growth in like for like sales at both brands having recently been achieved, analyst consensus opinion currently denotes a ‘strong hold’.

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