Goldman upgrades Sainsbury on market share gains and pricing power

Shares in J Sainsbury jumped on Friday after analysts at Goldman Sachs upgraded their rating on the supermarket stock on the back the company's strengthened position amid an improving inflation outlook.

The bank lifted its recommendation from 'neutral' to 'buy' and hiked its target price from 305p to 350p for the shares, which were up 3.1% at 299.06p by 0832 GMT.

Goldman said it expects a "rational UK food market" to follow as forward producer price index indicators suggest inflation to fall from around 5.5% in the first quarter of 2024 to 3% in the second before stabilising at roughly 2% over the second half.

Amid this slowdown in inflation, the bank said that discount stores like Aldi and Lidl are easing the pace of store rollouts while inflating prices above the market to focus on margins, while both Asda and Morrisons continue to lose market share due to "uncompetitive pricing positions" which Goldman says are driven by debt and rent burdens.

Meanwhile, retail media and private label allows larger-scaled grocers like Sainsbury to maintain more competitive pricing compared with smaller players, it said.

"Sainsbury’s has strengthened its positioning through the year, with our proprietary price analysis indicating that it has closed the price gap vs Aldi, becoming the second of the Big Four to do so. Consequently, Sainsbury’s has seen strongly improving market share momentum, with recent market share gains outpacing Aldi," Goldman said.

The bank has raised its grocery sales growth forecasts for Sainsbury for this year and the next.