Supermarkets Gain on Bullish Broker Notes

Supermarkets made some significant gains on Wednesday as Morrisons and Sainsburys profited from bullish broker comments following the news that the two major chains were in talks about a possible tie-up.

UNDEFINED - Thursday, June 25, 2015

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Sainsbury (J)

The FTSE 100 was boosted by the gains in WM Morrison and J Sainsbury, as Societe Generale noted that a purchasing partnership of the two supermarkets made commercial sense, and explained that it would benefit Sainsburys by offering better flexibility and allowing them to invest in prices while still increasing their margins. It also noted that the consolidation of purchasing was something that happened in the French supermarket sector in 2014, and that UK supermarkets would do well to copy the French model.

Sainsbury’s was upgraded from “hold” to “buy” following the news. Analysts noted that the decision from Sainsbury’s to focus on offering quality products in a bid to differentiate itself from its rivals was a wide one, and that such market positioning was more resilient than many people might think. It was noted that a full merger would be a bad decision for both companies, at least for the moment, but that a purchasing agreement would work well. SocGen did note, however, that if market conditions were to continue to deteriorate then a full-blown merger could be a good defensive move.

UBS commented that the UK Food Retail Sector may be about to make a recovery, noting that the disruptive influence of the discount retailers, something which had been problematic for the sector last year, was probably past its pek.


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