Bank of America ML downgrades Sainsbury's to 'neutral'

It said that following the collapse of the Asda merger, the focus has switched back to core retail, with the group flagging labour cost savings, better buying terms and own label range reset to be key drivers over the next 12 months.

However, while the recovery plan is "encouraging", the recent underperformance versus the market is a concern and growth plans carry an execution risk, BofA ML said.

Merrill said the stock trades at a 22.5% discount to the sector average, which it reckons fairly reflects the risks around delivery from the company's recovery plan. It's also in line with the stock's historic discount average to the sector.

Sainsbury's and Walmart-owned Asda agreed last month to ditch their proposed merger after the Competition and Markets Authority blocked the deal on the basis that it would leave shoppers worse off.

In its final results earlier this month, Sainsbury's said it had taken a £46m hit from transaction costs related to its proposed combination with Asda. It reported a 7.8% jump in underlying pre-tax profit to £635m but a 41.6% decline in pre-tax profit to £239m.

At 1230 BST the shares were down 2.1% at 209.50p.