Credit Suisse upgrades Sainsbury's on Home Retail deal

The bank said the acquisition of Home Retail should boost profits, provide opportunities to grow sales, reduce costs, expand Sainsbury’s customer base and improve logistics.

“While the transaction will consume a significant amount of management time, we believe it will be time well spent. Executed successfully, the transaction should allow Sainsbury to maintain the relevance of its store estate – its biggest asset – for longer,” CS said.

It pointed out that Sainsbury’s has stated that 6% of its space is unproductive and said the Home Retail deal should address this problem immediately.

Still, CS said its structurally negative view of the sector remains.

It argued that Sainsbury's actions were partly in response to the same issues that drive its negative thesis on the sector: shifting consumer behaviour, the rapid growth of new channels and the decline of traditional supermarkets.

“As we have said previously, we do not expect (or need) Sainsbury to morph into Amazon or Ocado – it just has to stay ahead of Tesco and Asda.”

At 0905 BST, Sainsbury’s shares were up 1.5% to 284p.