Shore Capital stays at 'buy' on Sainsbury's ahead of H1 results

Sainsbury's will report H127 results on 22 October, with Argos treated as an asset held for sale ahead of its expected disposal in February 2027. Shore Capital forecasts first‑half underlying earnings of £525m and sees its full‑year EBIT estimate of £1.07bn - including a £9m Argos contribution - as "well underpinned".

The broker said the disposal of Argos and the sale of financial‑services activities would leave Sainsbury's a more focused, asset‑backed and cash‑generative grocery‑led business, better positioned to deliver on its Food First strategy.

Shore Capital highlighted the continued strength of Sainsbury's food proposition under chief executive Simon Roberts, pointing to the success of Taste the Difference, improvements in Nectar and stable value messaging through Aldi Price Match.

Grocery sales rose 3.6% in the first quarter, though non‑food categories were weaker. However, the broker said the second quarter likely softened due to lower food inflation, fewer staycations and reduced demand during hot weather and the FIFA World Cup, limiting operational gearing.

Even so, it expects supermarkets to have performed well, supported by store refresh programmes, while online and convenience trends were more subdued. Shore Capital also noted growing macroeconomic headwinds, including higher fuel and energy costs, but said Sainsbury's stronger value credentials and broader brand appeal should help it navigate a tougher consumer backdrop.

Shore Capital said Sainsbury's valuation remained attractive, trading on 14.4x FY27 earnings, 5.9x EV/EBITDA and offering a 4.2% dividend yield and 7.5% free‑cash‑flow yield. It added that the shares deserved their recent re‑rating given consistent earnings progress and strong cash generation.

Reporting by Iain Gilbert at Sharecast.com