Newspaper article The Evening Standard (London, England)

Goldman Gives the Supermarkets Pain

Newspaper article The Evening Standard (London, England)

Goldman Gives the Supermarkets Pain

Article excerpt

Byline: MICKEY CLARK

FARMERS have been moaning about rising food prices for some time, butnow the supermarkets are starting to feel the pain as well and that could bebad news for shoppers before long.

That is the view of Goldman Sachs, which has downgraded the share ratings ofthe big food retailers because it thinks rising costs are starting to putpressure on margins. It even hints at stagflation, whereby the economy is hitby a combination of low growth and soaring inflation.

Goldman warns spending on food is not immune to slowdown and expects the bigretailers to battle for volume share. The big three supermarkets were amongsome of the biggest blue-chip casualties today.

Goldman has removed J Sainsbury from its conviction buy list following a poorperformance of late and has lowered its target from 455p to 410p. Sainsburyshares fell 8p to a two- year low of 331 1 2 p. That compares with the 600pDelta Two offered for the business last year, before breaking off talks inNovember.

The broker has also cut Tesco , down 11p at 382 3 4 p, from neutral to sell andslashed its target from 430p to 365p because it expects the shares to fallfurther as the sector comes under increasing pressure.

Wm Morrison , which yesterday reported a doubling of pre- tax profits lastyear, is downgraded from buy to neutral and Goldman lowered its sights on theprice from 335p to 310p. It says the impressive run by the shares has alreadycaptured the group's strong trading momentum. Morrison fell 12p to 277 3 4 p.

Food prices continue to rise with wheat costs having more than doubled duringthe past year. That has made animal feed more expensive and filtered through tosuch items as bread and dairy products, where the supermarkets recently agreedto pay farmers 15% more for milk and cheese.

Elsewhere in retailing, DSG International shaded 1 2 p to a record low of 58 12 p after Dresdner Kleinwort slashed its target from 90p to 55p, warning thatthe trading environment and outlook for the PC World stores chain were bitinghard on its performance. …

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