Sainsbury Shares: Analyst Forecasts Attractive Total Return For SBRY

Analysts at Shore Capital stated in a recent client note that they expect Sainsbury (LON: SBRY) to provide an “attractive double-digit TSR [total shareholder return].”

Looking ahead to Sainsbury's preliminary results on April 25, the firm, which counts Sainsbury as a “House Stock,” said it had taken the opportunity to finesse forecasts for the recent year ended.

“Sainsbury equity valuations are undemanding to us, and we highlight the 5% DPS yield,” said the firm. “Q4 FY24F Grocery trading has remained strong.”

Shore Capital feels Sainsbury's grocery trading through the fourth quarter has remained strong. They noted that secondary data suggests continued outperformance relative to peers and so further market share gains.

“Indeed, we believe the Grocery volume performance has remained in a healthy positive position, with Sainsbury making switching gains from all its retail peers, an attractive position in the early days of FY25F and heading into the important Easter trading period,” added Shore Capital.

The firm maintained its FY24 grocery sales forecast unchanged, looking for total second-half sales growth of 8.4%.

However, it states that general merchandise had a tough third quarter, reflecting “very tough YoY comparatives in Argos” in the run-up to Christmas. This was coupled with a more promotional trading environment.

Nevertheless, it believes that the combination of mid-single digit current pre-tax profit growth, the compounding impact of a sustained buyback programme and the “high quality” of the recurring ordinary dividend lead to a total shareholder return comfortably within the low double-digit range.

Shore Capital feels sales and margin forecasts are conservatively pitched. As a result, it could offer upside risk to EBIT, free cash flow, and EPS risk over the medium term, taking Sainsbury's total shareholder return into the teens.