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Sainsbury's results put UK retail under spotlight again

As if the UK retail sector hadn't had enough coverage last week, it's now the turn of Sainsbury's....

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Sainsbury's - one of the UK's big four, reports this week.....

As if the UK retail sector hadn't had enough coverage last week, what with BHS, Austin Reed and the like, it's the turn of supermarket Sainsbury (LON:SBRY) this week.

The company has final results out on Wednesday, May 4 and traders will be keen to see how the figures compare with its peer group, otherwise known as the "Big Four".

Notably, Morrison's (LON:MRW) also has a trading update the following day (May 5).

Last month, the Bradford-based group reported lower annual sales but swung to  pre-tax profit of £217mln against a loss of £792mln a year ago and said it had reduced net debt by £594mln to £1.75bn.

Meanwhile, retail supertanker Tesco (LON:TSCO) recently posted finals, which David Lewis had hailed as showing a "transformation", but many commentators thought that may have been a tad premature.

Against the backdrop of significant pressures in the whole sector, Shore Capital quipped that the Tesco's results were "positively boring" compared to its near all-time record asset impaired losses the year before, but added there was still lots of work to be done.

Significantly, Tesco did return to profitability at the statutory operating level, with a profit of £1.05bn compared to a loss of £5.75bn a year ago.

Third quarter update was upbeat….

Sainsbury's third quarter trading update for the 15 weeks to January 9 was upbeat, which showed good trading over Christmas and, with total retail sales  0.8% (excluding fuel), and down 0.7% including fuel.

Given that, the group said it expected like for-like sales in the second half to be better than the first.

"Food deflation and pressures on pricing will ensure that the market remains challenging for the foreseeable future," said Mike Coupe, chief executive.

All the big UK supermarkets have faced well-documented difficulty competing against discounters like Aldi, and traders will be keen to see how Sainsbury is doing on that front.

The £1.4bn take-over of Argos..

But the elephant in the room could potentially be its £1.4bn  takeover of Argos at the  beginning of April after a four month battle.

The aim is to create a "multi-product, multi-channel" retailer but almost no sooner had the deal been struck than parent Home Retail Group (LON:HOME) revealed  a 36% slump in profits at the catalogue firm.

Sales at Argos stores open for more than a year had slipped 2.6% in its recently ended full year as strength in toys, sports equipment and furniture failed to offset weakness in electrical products, which account for more than half of sales.

The impact of the Argos deal is of course yet to be seen but broker Deutsche for one expects it to be earnings accretive and upgraded SBRY shares to 'buy' from 'hold' and increased the target price to 325p from 265p - a 23% uplift.

Traders are worried about the execution risk of the deal, noted analyst Niamh Mcsherry, who interestingly also notes that SBRY has achieved the greatest reduction in the level of promotions of the so -called "Big Four" over the last year and a half.

"We think this can contribute to a better margin trend."

The analyst reckons the Argos acquisition as part of the Home Retail Group will generate 4.5p of additional EPS (earnings per share), which is 20% higher than consensus for the 2018/19 year.

BT reporting this week..

Former state- owned telecoms giant BT (LON:BT.A) is another big name reporting this week, and there have been positives recently despite a drop in the share price - 10% in the last two months.

In February, regulator Ofcom allowed it keep its Openreach network arm, believing it still had an incentive to make decisions in the interests of BT rather than rivals.

The group also posted better-than-expected third quarter numbers, with underlying earnings (EBITDA) in the three months to 31 December rising 3%, versus expectations of a 1% increase, to £1.1bn.

Adjusted profit before tax rose 14% from the year before to £928mln on the back of a 4.7% rise in underlying revenue to £4.59bn. Analysts had been expecting a 2% rise in the top line.

Having completed its acquisition of mobile phone business EE, the group's new structure took effect from April this year. There are now six lines of business: Consumer; EE; Business and Public Sector; Global Services; Wholesale and Ventures; Openreach.

Last week, Swiss broker UBS upgraded shares to 'neutral' from 'sell' saying the risk from mobile was lessening.

The share fall has been down to increased competition in the UK, investors reducing UK exposure ahead of a possible Brexit vote and sector rotation.

UBS also notes that recent press reports state the EC is likely to block the Hutch/O2 UK tie-up and that Sky was due to be the main beneficiary of merger remedies.

"On this basis, there may be less scope for Sky to be aggressive when it launches its UK mobile service later this year," said the analyst. The broker targets 430p. (current price 443.2p).

To smaller fry and drug developer ImmuPharma PLC (LON:IMM) also reports next week. It's been a busy few months for the group in terms of milestones.

Recruiting patients in Europe begun last month for its pivotal phase III trial of Lupuzor, aimed at treating the autoimmune disease Lupus, while first patients in the USA had begun dosing in February. Investors will be keen to hear any latest developments.

This year has also seen it successfully raise £8.4mln to fund the drug's development.

In all, 200 Lupus sufferers will be brought in and the aim is to complete the trial by the end of 2017 with top line results then.

Lupuzor has "blockbuster" potential, which means, under the pharma industry's own definition, a drug that could generate US$1bn or more a year in revenue.

 

Significant announcements expected:

 

Tuesday May 3

Indivior Plc (LON: INDV), Just Eat (LON:JE.)

 

Wednesday  May 4

Finals

1Spatial PLC (LON: SPA), Venture Life Group Plc (LON:VLG), Sainsbury (J) PLC (LON:SBRY), ImmuPharma PLC (LON: IMM), Beximco Pharmaceuticals Ltd (LON:BXP), Avon Rubber PLC (LON: AVON).

 

Thursday May 5

Interims

BT Group PLC (LON: BT.A), Sage Group (The) PLC (LON:SGE), GW Pharmaceuticals PLC (LON: GWP), Inmarsat Plc (LON: ISAT), Lancashire Holdings Ltd (LON:LRE) and Millennium & Copthorne Hotels PLC (LON: MLC)

Friday, May 6

Smurfit Kappa Group PLC (LON: SKG), Numis Corporation PLC (LON: NUM).

 

Friday, May 6

InterContinental Hotels (LON:IHG), BBA Aviation (LON:BBA).

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