Shares in J Sainsbury (LON:SBRY) have advanced in today’s session, as Barclays Capital hiked its rating and price target on the blue-chip grocer, assuming 80-percent chance of success of the group’s proposed merger with Walmart’s Asda. The comments mark a boost for the FTSE 100 grocer, whose shares came under pressure yesterday after the latest Kantar data showed that the grocer had underperformed the other ‘Big Four’ supermarkets, with its sales having fallen in the 12 weeks to June 17.
As of 13:35 BST, Sainsbury’s share price had added 2.90 percent to 4,006.00p. The stock is outperforming the broader London market, with the FTSE 100 index currently standing 0.82 percent higher at 7,599.96 points.
Barclays Capital lifts rating on Sainsbury’s
Barclays Capital hiked its rating on Sainsbury’s from ‘equal weight’ to ‘overweight’ today, lifting its price target on the shares from 300p to 375p. Proactive Investors reported that analysts estimate that the FTSE 100 grocer is 400p per share on a merged basis and 285p on a standalone basis.
The analysts noted that while they have long thought that the FTSE 100 group’s merger with Asda makes sense, the question is whether the likely competition remedies will render the proposed deal uneconomic. The broker, however, noted that having had more time to run the numbers and explore alternative scenarios, it was now assuming an 80-percent chance of success for the deal.
Barclays Capital explained that while the view of the UK competition watchdog would likely remain unknown until mid-2019, it was “sceptical about store disposals being highly material given that both companies have taken extensive advice and are investing considerable credibility into the transaction”.
First-quarter trading update forecast
Sainsbury’s is scheduled to post its first-quarter trading update on July 4 and Proactive Investors reports that Barclays analysts expect the grocer to report like-for-like sales growth of -0.1 percent, down from +0.9 percent in the fourth quarter of last year.