Grocers facing 'zero' growth in 2018, Credit Suisse downgrades Sainsburys

Sainsbury's and its large supermarket rivals are likely to deliver "zero growth" in 2018, warned Credit Suisse as it downgraded the orange-liveried grocer to a 'neutral' rating.

The Swiss bank, which cut its target price on Sainsbury's to 275p from 295p alongside a moved off its former 'outperform' rating, kept Tesco's on an 'underperform' rating but upped its target price to 185p from 165p, while keeping Morrisons on 'neutral' and cutting its price target to 230p from 250p.

"Despite the market pricing in hopes of a turnaround in 2018, we expect meager share-price returns for the major grocers as our latest data do not support a materially better outlook, with food volume growth effectively zero," analysts said.

While Sainsbury's non-food business has been boosted by its Argos acquisition and could accelerate beyond 2019, this is "too far away" to support the "under threat" core grocery operations.

Analysts reduced like-for-like sales growth forecasts for Sainsbury's to 0.3% from 1.0% in the 2019 financial year and a fall of 0.3% is seen in 2020, revised down from growth 1.5% growth.

Tesco is undergoing a sustained recovery in store operations, taking market share from all other members of the Big Four, but the group is still overexposed to the unproductive large stores in its estate and is losing share to Aldi and Lidl.

Tesco's broad convenience store network "will remain a competitive advantage" after the merger with wholesaler Booker, but this is a "complex merger" and the company faces high consensus expectations from analysts.

As for, Morrisons, the improvement to its store operations and capital-light, wholesale-focused growth strategy under CEO David Potts are being offset by competition heightened competition, the long ramp-up of its wholesale business "and a valuation that already factors in most of the positives as near-term headwinds".