After a period of falling profits, weak balance sheets and operational restructuring, UK supermarkets are turning a corner. Three of the ‘Big-4’ operators are reporting improving retail sales, leaner balance sheets and leaner supply chains. Although more needs to be done, these operators’ credit risk has declined enough to justify lower yields. Moreover, the supermarket segment’s current yield spread over UK government index-linked sovereign bonds means that there is an additional value play boosting the attractiveness of food stores to both income-focused domestic and overseas investors. Here, we issue our ‘buy’ rating on the UK supermarket segment.
Source : Savills Investment Management