HSBC upgrades Sainsbury’s to ‘buy’

The bank noted that Sainsbury’s has been gaining top line momentum, having disinflated prices ahead of the market.

It said the launch of the Nectar loyalty programme was a success, and combined with Sainsbury’s relative competitive advantage in scale versus the other Big 4 retailers, Asda and Morrison, it should allow Sainsbury to continue to drive above market growth.

At the retailer’s capital markets day on Wednesday, HSBC expects productivity measures to be a key area of focus.

"We also expect the group to focus on building on its Food first strategy outlined three years ago, with an increased focus on innovation and a growing share of own-label, as well as refreshing its outlook for Argos and General Merchandise including clothing against the backdrop of an anticipated, cyclical recovery in non-food consumption trend," it said.

"The announcement of a share buyback would be the cherry on the cake, but is not required to support our upgrade to buy given the pull back of the shares on the absence of a Q3 profit upgrade, a function of slower peak discretionary sales/tough comps."

HSBC said its top picks are Carrefour, Tesco and Sainsbury, all rated ‘buy’. Its least preferred stocks are Ahold Delhaize and Metro - both of which it downgraded to ‘reduce’ from ‘hold’ - and Colruyt and Ocado, rated ‘reduce’, "as they either struggle with internal issues, have negative momentum or their business model is at risk".

At 1535 GMT, Sainsbury's shares were up 0.9% at 274.90p.