Sainsbury's rerating provides 'selling opportunity', says Berenberg

Berenberg highlighted that Sainsbury's first-quarter sales came in slightly ahead of expectations, driven by strong performance in the general merchandise business, although it did point out that management had noted this reflected a weather-related pull-forward of demand.

While Sainsbury's reiterated guidance for flat underlying pre-tax profits in its 2021 trading year, the analysts forecast a 3% decline year-on-year, saying they did not believe expectations for bank loan losses reflected the "severity" of the Covid-19 crisis, with the German bank adding that it believes investors should be focusing on 2022.

"We believe Sainsbury's exposure to discretionary retail will cause a drag on performance, as cash-constrained consumers reduce their expenditure and the channel shift to online sales will affect in-store profitability," said Berenberg.

The analysts also stated they continue to believe that Sainsbury's banking business will require cash injections, pointing out that the group cannot operate long-term with declining loan volumes, nor can it face having a loss-making bank due to the large fixed costs.

"With the shares re-rating 11% from the May lows, despite no improvement in the economic outlook, we believe this provides an attractive point to sell," said Berenberg, which also kept its 175.0p target price unchanged.