Sainsbury fights over the scraps

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The Independent Online
THE WEAKNESS of J Sainsbury's share price last week suggested that last Thursday's lacklustre results from Kwik Save Group, the low- price supermarketeer, may be only a dress rehearsal for its bigger competitor.

As there are limits to the capacity of even the much-wooed British consumer, the supermarkets are increasingly fighting over the same money. And where one suffers, the others must fight to avoid the pain.

Although the market is going for an increase in profits from £695m to £806m, at 432p the shares sell on a prospective p/e ratio of 15 and offer a slimline yield of 3.5 per cent. Avoid.

AVON RUBBER's interim results on Wednesday should please. As our chart shows, the shares have recently been recovering from their long slide since September.

Stockbroker Panmure Gordon reckons the company is heading for a near- doubling of pre-tax profits to £15.5m in the year to September, buoyed by growing European car demand and firm tyre prices. At 476p, the shares are on a prospective yield of 4.5 per cent, so this could be the time to ride the upward half of the tyre cycle. Buy.

THE NURSING home sector has been performing below par of late, with investors worried by heavy capital requirements. In March, however, Smith New Court recommended the shares of Takare when they were at 198p (they were 207p at Thursday's close), and now it is the turn of Panmure Gordon to push the stock.

The stockbroker says that Takare's earnings should grow at a strong pace over the next few years, due to favourable demographic factors and the poor quality of many homes.

Panmure expects earnings per share to grow from 14.5 in 1994 to 21.8 in 1997, taking the p/e ratio below 10. So long as there is no fresh equity issue - and Panmure does not expect one for the time being - the shares are still a buy.

AFTER the recession of the early 1990s, life is beginning to look a touch more rosy for Forte, Britain's largest hotels and restaurants group. With the purchase of Meridien last November for £280m, the group has more than 100 hotels in more than 50 countries.

Profits for the year to January 1995 rose by 65 per cent to £127m, and Charles Stanley expects earnings per share to grow from 10.1p in 1995 to 17p two years on.

Stanley says the recent acquisitions have enhanced the portfolio while permitting cost savings and not damaging earnings. The broker says that all the signs point to sustainable growth in the UK and international hotel markets, which is not fully reflected in the performance of the shares. Buy.

EVEN on their much-vaunted target of 20 per cent growth a year, Rentokil shares are a sell. They have been marking time in ominous fashion for a year now, signalling that the years of raging advances are over, at least for the time being. The organic growth is not there, and it is harder to find the takeovers to meet the target. At 260p, the shares are on a prospective p/e ratio of 18.5 - too demanding. Sell.

TIME to buy Land Securities again. The shares have fallen more than 100p from their 12-month high of 679p, to the point where this high-quality stock, owning big chunks of commercial London, is selling on a prospective yield of 5.5 per cent - and that in respect of the year that ended in March. The results, due in June, will be flat but there should be scope for an upturn in the current year.