Sainsbury shares falter as strong sales growth already priced in

Supermarket group J Sainsbury said sales in the first six months of the year grew faster than many analysts had been expecting but uncertainty about government spending cuts means customers are holding back from buying non-food items.

The supermarket group reported a 4.3% rise in sales underlying basis or 2.1% if the impact of higher VAT and petrol prices is stripped out - better than the 1.5% rise analysts had been expecting.

The growth was also faster than the 1.3% growth in sales excluding petrol in the UK reported by Tesco yesterday.

But Sainsbury's shares fell 4.7p to 384.9p as analysts said the good news has already been priced in as Sainsbury shares have outperformed rival Tesco so far this year.

Sainsbury's chief executive Justin King said the rising cost of petrol 'has continued to act as a pressure on household budgets,' echoing comments from Tesco's chief Terry Leahy yesterday.

James Grzinic, equity analyst at Jefferies, said the stronger than expected sales performance reflects the soft sales at the same time last year and higher food inflation.

With Sainsbury's shares trading at an 18% premium to Tesco shares on a price earnings basis and ongoing uncertainty about how UK consumers spending habits will change, Grzinic does not believe now is the time to buy the company’s shares.

Kate Calvert, analyst at Seymour Pierce, agrees. 'We believe this growth plus some operational gearing is reflected in Sainsbury's valuation and see better value in Tesco for its international exposure.'