Sainsbury profit surges but shares fall on outlook

By Rachel Sanderson

LONDON (Reuters) - Supermarket group J. Sainsbury (SBRY.L) reported a 24 percent surge in annual profit to nearly half a billion pounds, but its shares fell on the weak consumer outlook and higher investment in its online business.

Shares in the country's third-largest supermarket group after Tesco (TSCO.L) and Wal-Mart Stores's Asda (WMT.N) were down 2.2 percent at 381 pence by 10 a.m., the second biggest faller in a positive DJ Stoxx index of European retailers.

Sainsbury, whose underlying pretax profit rose to 488 million pounds, in line with expectations, said investments in its online operations would likely prompt analysts to cut current-year profit forecasts by some 25 million pounds.

Analyst Nick Bubb at brokerage Pali International cut Sainsbury's to "neutral" from "buy", while analysts at Numis downgraded the company to "reduce" from "hold".

"Today's final results contain lots of waffle about 'making Sainsbury's great again', but it is not clear how well the business's premium positioning will stand up to the tougher consumer climate that is fast developing," Bubb said in a note.

But other analysts saw bright spots. Seymour Pierce's Freddie George raised his rating to "buy", arguing for Sainsbury's online expansion potential and expectations of a renewed bid approach from the Qatari Investment Authority which owns 25 percent of Sainsbury's shares.

A bid restriction on Qatari fund Delta Two lapsed this month, six months after the group dropped bid plans for Sainsbury last October as the credit crunch began to bite.

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