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Sainsbury Share Price (SBRY)

Share Name Share Symbol Market Type Share ISIN Share Description
Sainsbury LSE:SBRY London Ordinary Share GB00B019KW72 ORD 28 4/7P
  Price Change % Change Share Price Bid Price Offer Price High Price Low Price Open Price Shares Traded Last Trade
  +5.80p +2.37% 250.90p 251.10p 251.30p 252.40p 246.00p 246.00p 8,944,252 16:35:25
Industry Sector Turnover (m) Profit (m) EPS - Basic PE Ratio Market Cap (m) RN NRN
Food & Drug Retailers 23,775.0 -72.0 -8.7 - 4,826.77

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edmundshaw: Deal is worth over 160p even if you assume Sainsburys share price was fair at 240p. What? So Coupe accepts 240p as the new normal for SBRY share price? While accepting that 100p was a vastly depressed share price for HOME? Seems that "We will not overpay" is director code for "we are prepared to overpay substantially and screw out own shareholders". Must remember that for future reference :-(
loganair: Time to go shopping for Sainsbury’s? By Robert Sutherland Smith: Sainsbury at 253p after the interim results. The traditional quoted food retail sector is still undergoing a big change on an undetermined time scale. On that basis, Sainsbury shares may not look an obvious buy. However, I argue that the shares are attractive when the financial fundamentals are recognised. The shares, after the results of the first half of the current year, are priced at 253p and look pretty bombed out on those fundamentals. Our home grown food retailers (who of course sell more than food) have been in the grip of an insurmountable problem: losing market share to outside competitors who have been increasing their market share. Nothing can be more debilitating for a big business than the loss of scale and economic and financial benefits that come with scale of operations, whilst the competitive interlopers (in this case Lidl and Aldi, the Hengist and Horsa of UK retailing) are increasing and improving theirs. That is a bit like their fighting with one arm tied behind their back. The big question is how long it will take before the now more competitive sector settles down into a new equilibrium. No one knows and it is difficult to guess. Moreover, there are other threats to the current sector players – including the invaders. As our legacy retailers of staple products spot ‘on line’ shopping as a lower cost opportunity, internet operators like Amazon spot ‘on line’ sales of food stuff as a new market opportunity. We are clearly only part way through some pretty momentous changes in this sector; none of which are susceptible to clear visibility and easy prediction and certainly not credible forecasting. However, as always, there is the usual solution of some future consolidation amongst the retreating traditional players like Sainsbury, Tesco, Morrison and Waitrose etc. I suspect that will become a genuine prospect in due course, particularly if Amazon come into the food retailing business – taking even more British Exchequer tax revenue to other taxation jurisdictions no doubt. So, is there a case for buying UK food retailers and Sainsbury in particular? The elementary factors guiding us in answering such a question, include the following: that all companies in their activities are subject to degrees of uncertainty; share prices over time move to discount evolving news, facts and prospects; long term investors with wealth to preserve and hopefully grow, need a spread of investments and risk. That includes food retail shares of course. Coming to Sainsbury specifically, the best argument for investing money in it in comparison with other retail shares is that the share price is now discounting the difficulties. The share price last seen was 253p after the last interim results. About two years ago, the share price was over 400p. What does an investor now get for his or her money? First, a lot of sales revenue; on the basis of last year’s sales annual revenue at £23.5 billion on an equity capitalisation of £4.8 billion; put another way a share price of 253p buying historic sales revenue of an estimated 1,237p per share. Second, a very low price to book valuation. In fact the share price last seen stands at a 13% discount to balance sheet net assets in March. The market capitalisation of Sainsbury equity, currently standing at a value of £4.8 billion, commands an enterprise value which is three and a half times larger. In the balance sheet of 14th March last, total assets were stated as £16.5 billion. Also note that last year’s EBITD (basically profits before interest, taxation and depreciation are charged) amounted to £770 million putting Sainsbury shares on an EBITDA ratio of only 6.2 times on the basis of last year’s figures. Despite the gearing, interest costs were reportedly covered 6 times on an annual basis and 7.4 times on an interim basis. The shares price also stands at only 3.7 times last year’s annual cash and near cash held. Such valuations are strikingly low. Turning to the latest interim results, the disappointing news include the facts that the interim dividend was cut 20%; that there was a loss of market share and thinner margins; that sales fell 2%; and that underlying profits fell by 18%. The company is responding, we are told, by improving its own branded ‘taste the difference’ products, which, against the 2% fall in sales, actually grew by a reported 2% in volume terms. However, the incoming new CEO Mike Coupe talks of cutting costs according to a programme that seems ahead of schedule. The company is also increasing its convenience stores (very much the fashion in the sector) where sales have risen by a reported 11%, on the back of a one fifth increase in the number of such stores. Moreover, the retailer is developing its new Tu clothing offer – sales up 10% over the first half – as well as building its Sainsbury banking operation which is for the moment absorbing transformation cost. At a given point the bank should obviously be making a contribution to net profits. The market is estimating a 17% fall in earnings this year to earnings per share about 22p, putting the shares on a forward estimated price to earnings ratio of just over 11 times. The consensus estimate, at this juncture, is for a further 2% decline in earnings the year after that. Interestingly, it forecasts top line sales revenue for this year as being static at £23.75 billion and pretty close to that again in the following year at an estimated sales revenue figure of £23.52 million. In essence then, the market seems to be calculating that Sainsbury will hold its sales, with a well understood fall in earnings this year but holding on to most of those earnings the following year. The market consensus also estimates that the annual dividend will be reduced twenty per cent in line with the cut in the interim dividend. At the 10.5p dividend payout estimated for this year and next year the estimated annual dividend yield for this year and next is 4.4% p.a. As I always say on such occasions, I am no more gifted in seeing the future than the rest of humanity. However, as a compensation for that lack of prophetic vision, I can identify value in the here and now. Sainsbury at this level shows quite a lot of what we call fundamental value, as indicated above. With the share price at a discount to balance sheet net assets, investors now are arguably being asked to pay nothing for earnings. It will be interesting to see whether at this stage and at these levels of valuation, the bears will be tempted to fold up their short positions together with their tents. Sainsbury is reported to have been one of the most shorted shares in the market. Technically, the shares have been moving sideways for over a year in a trading range of roughly between 220p and 290p. Arguably, the share price looks as though it might have broken out of the earlier downtrend that took it into that range. Have a look and see if that is your interpretation.
loganair: Why I Won't Be Buying Shares In J Sainsbury By John Kingham: J Sainsbury along with the other major supermarkets, has been through the wars in recent years. Most people know the story by now, if only because of the more severe and highly publicised problems at Tesco. J Sainsbury: It's a supermarket Here's my extremely short version of the backstory for J Sainsbury. The big four UK supermarkets (Tesco, WM Morrison, J Sainsbury and, to a lesser extent, ASDA) had it fairly easy. As long as they did a half decent job, millions of shoppers would continue to shop with them. But then along came the Financial Crisis and the Great Recession, and shoppers had far fewer pennies to spare and more time on their hands to shop around. The result was a change of shopping habits to more frequent and smaller shopping trips, at local stores that focus on price more than anything else. That played right into the hands of discounters Aldi and Lidl, who fitted this new shopping behaviour like a glove. The initial response from the big supermarkets was to ignore the discounters, but that was a massive mistake and the big four have been losing market share and struggling to adapt quickly enough ever since. A highly successful company, until recently: things had been going very well. The company has a long and unbroken record of dividend payments and, in recent years, revenues, profits and dividends had all been going strongly. Its statistics for the last 10 years look like this: •Growth Rate (covering revenues, profits, dividends) of 6.4%, well ahead of the FTSE 100's anaemic 0.8% •Growth Quality (frequency of revenue/profit/dividend increases) of 75%, also ahead of the FTSE 100's mediocre 50% •Net ROCE (median over 10 years, net of interest and tax) of 5.4%, below the large company median of 10% So J Sainsbury has grown fairly quickly and smoothly over the last decade, including the profit and dividend decline in the 2015 results. However, its profitability as measured by Net ROCE (Return on Capital Employed) is weak. Because I use post-interest and tax profits as the "return" part of ROCE, this low profitability figure could be because Sainsbury's core business isn't very profitable, or because the company has lots of debt (and hence large interest payments) or other non-operational expenses, or both. In fact, Sainsbury's profitability is so low that it effectively rules the company out as an investment for me. I currently use the following rule of thumb: Only invest in a company if its 10-year median Net ROCE is above 7% J Sainsbury fails that test, so that's the first reason I would be buying the company's shares. But there are other reasons too. Its financial obligations are too large for my liking One of the reasons for Sainsbury's weak profitability is its large debt obligations. It has £2.8bn of total interest-bearing debts as at the 2015 annual results. That sounds like a lot and it is, especially as the company has "only" earned an average of £0.5bn in post-tax profits over the last 5 years. Another large financial obligation is its defined benefit pension scheme. Because the company must ensure that its pension fund assets exceed the fund's liabilities, it must pour cash into its pension fund if there is a deficit. And that's exactly what it's doing today. The pension fund obligations stand at £7.7bn, while the pension deficit is £0.7bn. That deficit must be closed, and the company has agreed to pay £49m into the scheme each year until 2020, which currently amounts to almost 10% of the company's post-tax profit. And so for J Sainsbury we have: •Debt Ratio (ratio of total borrowings to 5-year average post-tax profit) of 5.2 •Pension Ratio (ratio of pension obligations to 5-year average post-tax profit) of 14.4 •Combined Debt and Pension Ratio of 19.6 Unfortunately, those ratios break some of my other rules of thumb: •Only invest in a defensive sector company if its Debt Ratio is below 5 •Only invest in a company if its Pension Ratio is below 10 •Only invest in a company if its Combined Debt and Pension Ratio is below 10 So along with "too low" profitability, J Sainsbury also has "too high" financial obligations for me. As a result, I won't be buying the company's shares anytime soon, no matter what the price. The shares are attractively valued, if you ignore the other problems Even though I wouldn't consider buying the company's shares at the moment, I'm crunching through the accounts anyway so I might as well take a look at what share price might be considered "fair value" given its financial history. The caveat here is that this fair value would only apply if the company wasn't breaking any of my rules of thumb, but it's still an interesting value to calculate. As J Sainsbury has a slightly above average record of growth, its shares, according to my valuation system, deserve a slightly above average rating. With its shares currently at 261p, the company's valuation multiples look like this (compared to the FTSE 100 at 6,700): •PE10 (price to 10-year average EPS) of 10.9, which is lower than (better than) the FTSE 100's 14.0 •PD10 (price to 10-year average dividend per share) of 18.5, which is lower than (better than) the FTSE 100's 32.9 •Dividend yield of 5.0%, higher and better than the FTSE 100's 3.5% So in terms of valuation, J Sainsbury is significantly more attractively valued than the FTSE 100. Its share price is cheaper than average, relative to past earnings and dividends, and the dividend income yield is above average. And remember, the company also has a better track record of growth than average, so if anything it should be on higher valuation multiples than the index (ignoring its various problems, of course). To calculate fair value for the company's shares, I can adjust its share price until it has a middling rank on my stock screen. At its current 261p, J Sainsbury has a rank of 47 out of 230 companies on the screen, so it is one of the most attractively valued (again, ignoring its problems). For the shares to be "fairly valued," they would have to increase to 450p, which is some 72% above their current share price. At that level, the shares would have a historic dividend yield of 2.9%, which I think would be reasonable as long as the company's successful past could be replicated in future. However, the company's profitability is too low for me, and its financial obligations are too large, so I won't be investing at the moment. Note: Last time I looked at J Sainsbury's shares, I was much more upbeat. However, since then (May 2014), I have become more cautious about both profitability and financial obligations (partly as a result of the problems with Tesco and Morrisons), so under my now much stricter system, the company has gone from a buy to uninvestible.
spob: FT Alphaville today BE Anyway, HOME a bit weak this morning. PM hxxp://www.theguar...eam-football-story BE Some talk around among the short sellers this morning, which as absolutely not been backtested, to be clear. BE The idea being that Sainsbury will bid again, but it's likely to be an incremental bump rather than a knockout. BE And HOME would struggle to accept an incremental bump. PM hmm Real time stream connected. New messages will appear here the moment they are published. BE Note the HOME short interest, though. BE PM 8% or so BE Yup, still nearly 9% of free float. There's a plenty to be made from spreading bear stories. BE Anyway, let me get Haitong BE Tony Shiret, who absolutely hates Argosbury. PM does he now BE Or Argbury. Perhaps that's better. BE Clearly the only things that can save Home Retail (HOME) as an independent company now would be pressure on Sainsbury (JS) (SBRY LN, 236p, Neutral, FV 235p) management not to proceed to make an offer, or a derisory low-field price. For Sainsbury CEO Mike Coupe either would represent a significant personal blow and we would expect management to be even more determined to continue despite the almost universally negative response to his proposed strategy. The HOME team’s surprise move to sell Homebase to Wesfarmers of Australia does raise the question of whether the subsequently de-levered Argos rump could be taken private, which we examine in this note. However, our main finding having done this work is that divisional profits as shown by HOME may have been boosted for Argos by re-allocation of Financial Services EBIT and that this undermines the overall valuation. Our FV rises to 135p from 95p. BE We have tested the various elements of Buy-Out arithmetic here. Private Equity could generate significant returns if the Argos Transformation Plan is successfully delivered in private ownership. But this is based in part at least on the starting point of very low profitability, which both highlights the risks involved for PE and limits the leverage a private vehicle could support initially and hence the exit price for HOME shareholders. Any consideration of the exit value of Argos must also be based on assuming that the Argos business model – which we believe has become more dependent on the contribution of consumer finance – is sustainable in private ownership (see below). As part of this exercise we have also had a much closer look at the composition of profits as stated by HOME. We believe that the Financial Services (HFS) business achieves far greater profits than stated and that these are re-allocated to Argos (mainly) and Homebase. We have estimated that over half of current year Argos EBIT is in fact re-allocated HFS profits, suggesting that the erosion of product based profitability has been greater than investors would generally believe. (We have received no co-operation from HOME in our analysis which incorporates a number of assumptions which may limit the accuracy of our conclusions.) The implication here is that Argos needs the support of a consumer finance structure to sustain its operations. BE Having performed the analysis we feel that there is a bit less to HOME than meets the eye. While HOME management may be motivated to offer for Argos, we believe that the valuations of Argos and HFS have to be considered together by investors rather than assuming a separate valuation for HFS based on its debtor book, because the returns implicit in a separate valuation of HFS would effectively be double-counted as its profits are mainly shown currently within the Argos EBIT. We assume that Sainsbury has probably done the same work we have managed in a couple of days over the last six months. So we would expect that it does not want to double-count assets either. This said the logic of its approach eludes us so its valuation is likely to as well. BE Canaccord also advising caution into the deadline. PM Hang on PM We assume that Sainsbury has probably done the same work we have managed in a couple of days over the last six months. PM That's a bit cheeky no? PM But go on PM Canaccord BE Similar conclusion, slightly more tame argument. BE With the clock ticking down to the 5pm deadline on 2 February (or potentially later if agreed by the Takeover Panel), by when J Sainsbury has to decide whether or not to make an increased bid for Home Retail, the answer should soon become clearer as to whether Argos is to continue with its Digital Transformation plan as an independent operator or (potentially) as a subsidiary of J Sainsbury. Home Retail is currently just over three years through its five-year plan, so it is a case of unfinished business at this stage. This will, of course, be dependent on a number of factors. First and foremost is whether Sainsbury does return with an enhanced bid. Assuming it does, we must see at what level this is pitched and whether shareholders are willing to accept this. In turn, this may depend on the mix of cash and paper offered. Given Sainsbury's own travails and challenges in its core grocery market, we would assume that the higher the mix of cash over paper, the higher the chances of success in securing Home Retail's shareholders' agreement. BE The market is not privy to the level at which Sainsbury's rebuffed offer last November was pitched (although press speculation centres at around 130p). There have been three key events since then - the proposed sale of Homebase to Wesfarmers for £340m (c 42p per share); a further profit warning from Home Retail; and market weakness and volatility. These will all play a part in Sainsbury's thinking for what it views as both a "strategically compelling transaction" but also "not a must do deal". As the potential bidder, it is only Sainsbury's (and its shareholders') view on the strategic compulsion of the transaction that matters. We do not have adequate insight into Sainsbury's strategy to comment in an informed manner, but it is clear from some of its published materials that the company (and its advisors) are serious in their deliberations and justifications on this matter. This has certainly changed our initial scepticism on the probability of a higher, follow-up approach. BE As long-term observers of Home Retail, we remain less convinced of the strategic logic and rationale of such a deal. However, just as beauty is in the eye of the beholder, value is in the eye of the bidder. Our analysis of the value of "rump" Home Retail, excluding Homebase at a £340m value, shows that any bid for the total group above 135p values this rump at a premium to the wider sector, compared with the 13% discount Wesfarmers has proposed to pay for Homebase. Only a "strategically compelling transaction" could justify that in our view. BE In light of our 10% forecast cuts following Home's Q3 IMS and some sector de-rating, in the absence of a bid approach we would have cut our fundamental valuation to 100p (from 115p). Ascribing a two in three chance to a bid at the current share price and a one in three chance of no further - or failed - bids, in which case fundamentals would re-apply, this gives our new target price of 134p. We therefore retain our SELL recommendation. BE All of which plays into the bear stuff above rather neatly. BE There's a quite startling disconnect between what the buyside says HOME is worth -- remember the flush of "we won't sell for less than 200p!" articles a while back -- and the value the sellside sees in the business. BE One can be cynical about both sides, of course. Though only the former is talking its book. 11:38AM
loganair: Sainsbury CEO Mike Coupe says its offer for Home Retail Group is about baking a bigger cake, one that neither British retailer could rustle up alone. Sainsbury is making sure it's getting the best slice - financially at least. On the face of it the supermarket chain's offer looks decent for shareholders in Home Retail, which owns the Argos general goods stores. At a price of 162.9 pence - thanks to a 2 percent rise in Sainsbury's share price on Tuesday morning - it’s a more than 60 percent premium to where Home Retail traded before the bid interest was made public. But the price includes 25 pence per share from selling Home Retail's Homebase shops to Australia's Wesfarmers, which Home Retail shareholders would probably have got anyway, as well as 2.8 pence in lieu of a final dividend. Take that off, and the premium falls to about a third, pretty standard for a takeover. Some Home Retail investors had hoped - unrealistically - for 200 pence, explaining why the shares barely moved on Tuesday morning. That's not to say that the deal makes sense for Sainsbury strategically. As Gadfly's noted before, it was doing pretty well on its own. Sainsbury needs to fill excess space in its big supermarkets and the Argos concessions already operating in its stores are trading well, indicating there might be some mileage in putting the brands together. Sainsbury will become the biggest non-food UK retailer and hopes the Argos delivery network will help it compete with Amazon. The combination is risky, though. Sainsbury estimates more than half of Argos's 800 or so stores have less than five years to run on their leases. But closing and relocating shops is a delicate business, and Sainsbury is banking on sales migrating from those high street stores to its supermarkets. Sainsbury has enough to contend with without a tricky integration. Supermarket rivals Tesco and Wm Morrison are steadying, while German price-cutters Aldi and Lidl are expanding apace. It’s a good thing, then, that Coupe has at least shown discipline on price. Still, Sainsbury needs the 120 million pounds of promised yearly synergies to make the deal pay. They're by no means guaranteed, and will cost a hefty 140 million pounds to implement. Plus there's another 140 million pounds needed to put Argos concessions into Sainsbury supermarkets. Sainsbury will get its hands on about 250 million pounds of Argos cash. Then there's its 600 million-pound customer loan book. So out of the 1.1 billion-pound element of the deal that Sainsbury is funding, it reckons it's getting Argos for 250 million pounds. Coupe's right not to overpay. Home Retail had a difficult Christmas, while Sainsbury shareholders must take it on trust that it'll do better in a combined group.
toffeeman: I think the recovery in the SBRY price since the announcement is indicative that the market thinks Sbry won't buy HOME - I certainly hope they don't!
loganair: Home Retail shares dive as Sainsbury's bid appears to stall: J Sainsbury Plc’s plan to acquire Home Retail Group Plc is in limbo as the U.K. retailers struggle to reach an agreement over price, according to four people familiar with the matter. Argos owner’s shares fall 10% but Sainsbury’s rise as reports claim takeover talks have failed to reach agreement on company’s valuation. in Argos owner Home Retail Group have dived nearly 10%, making itthe biggest faller in the FTSE 250, after a report that takeover talks with Sainsbury’s had stalled. Just days before the 2 February deadline for Sainsbury’s to decide on whether to make a bid, the two sides are reportedly struggling to agree a price. Sainsbury’s is unwilling to pay more than 150p a share for Home Retail, valuing the company at £1.22bn, according to a report in the Financial Times, while the Argos owner is holding out for 170p a share. Home Retail’s share price was down nearly 10% just before midday on Friday, at about 129p. The report comes after it emerged that major Home Retail shareholder Toscafund Asset Management, had sold 10m shares in the company at 152p each, reducing its stake to 7.25% from more than 8%. Retail analyst David Jeary at Cannacord Genuity also released a note on Thursday saying that any bid for Home Retail, after its sale of the Homebase DIY chain to Australian firm Wesfarmers, would be at a premium if it was more than 135p a share. “As long-term observers of Home Retail, we remain less convinced of the strategic logic and rationale of such a deal. However, just as beauty is in the eye of the beholder, value is in the eye of the bidder,” he wrote. Sainsbury’s shares rose 2.7% on Friday on reports that talks had stalled.
spob: Sainsbury in approach to buy Home Retail FT 5 January, 2016 Nathalie Thomas, Arash Massoudi, and Peter Campbell J Sainsbury has sought to pre-empt an assault by Amazon on the UK grocery sector by making an approach to buy Home Retail Group, the owner of Argos and Homebase. The UK’s second biggest grocer by market share said on Tuesday it made a cash and shares approach to Home Retail in November — shortly after the latter issued a profit warning — but was rebuffed last month. Sainsbury is now considering its position. The disclosure sent shares in Home Retail surging by almost 35 per cent by early afternoon, valuing the company at £1bn. Sainsbury shares were down 3 per cent at 246.8p. People familiar with the situation said Sainsbury was forced to issue a statement by the UK Takeover Panel following a sharp spike in Home Retail’s share price during lunchtime trading in London. The acquisition of Home Retail would allow Sainsbury to diversify into other parts of the high street. The supermarket group used to own the DIY chain Homebase, selling it in 2000, but suggested that its main interest was in Argos. Though famous for its glossy catalogues, Home Retail’s management, led by John Walden, has been trying to transform Argos into a digital business to beat off creeping competition from online retailers such as Amazon. Amazon is also starting to encroach on the supermarket chains’ turf, launching a grocery delivery service in the UK at the end of last year. “Amazon Pantry” delivers non-perishable food items to customers of its Prime service, who pay an annual subscription. But analysts believe it is only a matter of time before Amazon expands into fresh food, adding to existing pressures on UK grocers, which have been battling to overcome sales declines as they wage a fierce price war against the German discount chains Aldi and Lidl. Analysts at Olivetree Securities said Sainsbury’s move on Home Retail was an attempt to “fend off the inevitable pressures from players like Amazon which are likely to enter its core market”. The analysts added that a deal for Home Retail would also help the grocer address competition from other online food retailers such as Ocado. Sainsbury and Home Retail, which also owns furniture and homewares brand Habitat, have been experimenting over the past year with 10 Argos concessions in Sainsbury stores, offering customers the opportunity to pick up items they have ordered online while doing their grocery shopping. The supermarket chain said one of the advantages of a tie-up would be an “attractively located” network of stores across the UK with a “strong presence across food and grocery, clothing, homewares, toys, stationery, electricals, furniture and other general merchandise”. Sainsbury also pointed out that Home Retail had developed a “fast, flexible and reliable” home delivery service. Argos in October became the first UK high-street brand to launch a same-day home delivery service to defend against competition from the likes of Amazon. But several analysts questioned Sainsbury’s reasons for wanting to take on Argos. Clive Black, head of research at Shore Capital, said Argos had been a “really troubled business for some time” and Sainsbury would therefore be “buying problems that would have to be solved”. Analysts at Haitong Research said Sainsbury’s claims over the benefits of a tie-up appeared to have “flowed from the pen of an investment banker who has not been in Argos for a while/ever”. Home Retail in October warned that its full-year profits would be lower than previous market expectations following a tough first half for Argos, during which it suffered declining sales of electrical products. Shares in Home Retail dropped 23.7 per cent to 126p after the warning on October 21. But the stock had been regaining ground before Tuesday’s statement amid expectations that Home Retail would receive offers for Homebase. Nicholas Marshall, the former chief executive of the Garden Centre Group, told the Financial Times in November that his company, previously known as Wyevale, had been talking to private equity groups about a potential offer for Homebase. Sainsbury said there could be “no certainty” of a formal offer, but argued that a tie-up would be an “attractive proposition for the customers and shareholders of both companies”. “The combination is an opportunity to bring together two of the UK’s leading retail businesses, with complementary product offers, focused on delivering quality products and services at fair prices, through an integrated, multichannel proposition,” it said in a statement. Under UK takeover rules, Sainsbury has until 5pm on February 2 to make a formal approach or walk away. Comments definitively 2 minutes ago The click and collect on non-food could drive footfall for Sainsburys and a new, more affluent customer profile for Argos' refreshed 'digital store' proposition. It could be interesting. Also, instead of refurbishing all of those creaky Argos stores you could close a bunch and relocate to inside bigger sainsburys formats or their even to their car parks. It's risky, but 'it just might work'. ReportShare RecommendReply Prags 8 minutes ago Sainsbury taking over Argos - couldn't have come up with a stupider idea for the shareholders even if I had tried. It is one trouble business with limited future buyer another troubled business with no future. Only thing it does is distract the management and probably the shareholder focus on the poor and declining performance of the underlying businesses ReportShare RecommendReply Nguba 17 minutes ago The Argos property estate needs a lot of investment. When you step into many of their stores outside London it really does feel like you've stepped back in time. Many Argos stores have been barely touched since the early 1990s. Amazon may have many critics, but I don't think any physical UK retailer could match Amazon's real desire to innovate and the sheer speed at which Amazon operates.
loganair: Mike Coupe was convinced of the need to win control of Argos and more control of online shopping by his daughter’s preference to make purchass on her mobile. But the real test for him will be execution if the deal is eventually done. Experience tells us that very few mergers create new value and the distraction for managers, especially those engaged in a market as competitive as grocery, can be damaging. It looks to be riding out the no-frills challenge with a degree of aplomb. The company’s reputation for offering better quality than its biggest competitors, Tesco and Asda, and being not far off Waitrose, is serving it well. Coupe noted that the leases on about 55 per cent of Argos’s 734 UK stores are due for renewal over the next five years. A combined group would offer about 100,000 products and 2,000 locations for shoppers to buy their goods. "The retail winners will be those that bring together a physical and online presence. Having a physical presence is an important part of our strategy through supporting high streets.” Not everyone is convinced the move will be enough to become a viable rival for Amazon in the UK. One big disadvantage for Sainsbury’s is that it pays the full whack of corporation tax and Amazon doesn’t. And Sainsbury’s shareholders expect the company to turn in rising revenues, profits and a dividend whereas Amazon investors have learned to be patient. "Argos isn't very far through its modernisation, so Sainsbury's shareholders would assume that risk," Tony Shiret, an analyst at Haitong Securities, said. "Argos is an ugly duckling. It won't turn into a swan just because Sainsbury's kisses it." And although the supermarket reckons it's a great deal, it's not completely relying on it. There’s nothing like a takeover approach to concentrate minds. Home Retail Group, a week after Sainsbury’s announced it was on the prowl, is set to sell its Homebase chain to Wesfarmers of Australia. Discussions began last September, says Home Retail, but it looks as if both sides decided to hurry up the talks. There’s no shame in that, especially as Sainsbury’s sole interest in Home Retail is Argos. It is the sale price for Homebase that matters more. On that score, the headline price of £340m looks decent, but it’s not quite as it seems. A mighty £75m is earmarked for “restructuring, separation and deal costs” and £50m for the pension scheme. That leaves £215m for shareholders, which is less exciting. Still, the removal of Homebase would make the arithmetic of any deal with Sainsbury’s cleaner. It’s just that the supermarket chain’s shareholders will surely want to see something more substantial than Wednesday’s 22-page presentation that contained all the details except the important ones. Page 18 showed that Home Retail pays £333m a year in rent. How much of that sum could be turned into easy profit by closing Argos shops as their leases expire and opening replacement units within the nearest Sainsbury’s supermarket? There was no answer because Takeover Panel rules restrict what a would-be bidder can say at this stage of the dance. Thus chief executive Mike Coupe gave another airing of his sermon about how Sainsbury’s wants to be a “multi-product, multi-channel” retailer. The theory is fashionable but, without numbers, the debate is empty. Coupe said Argos would “accelerate221; Sainsbury’s non-food, multi-channel strategy. Maybe it would, but there’s no point trying to travel faster if you end up with a lower return on capital versus your go-it-alone plan. Similarly, it looks to be coping with multi-channel shopping reasonably well. Sales from convenience stores, online and non-food are impressively up. Investors (which include this writer) clearly have concerns that because Sainsbury’s has set out with determination to buy Argos, and may even be willing to go hostile, it might overpay. In other words, there is probably a price at which a takeover makes sense for Sainsbury’s. But unless the property savings are truly impressive, that price may not be much higher than Home Retail’s closing share price of 148p.
spob: hTTp://ftalphaville.ft.com/2016/01/05/2149177/making-sense-of-argosbury/ Making sense of Argosbury Bryce Elder FT 5 Jan 2016 A J Sainsbury bear hug on Home Retail Group, the owner of Argos, has proved quite unpopular. News of Sainsbury’s November cash-and-shares offer to buy Home Retail led the grocer’s shares to be marked 5 per cent lower, cutting its market value by £300m — equivalent to nearly a third of the market cap of its target. Jefferies’s James Grzinic sums things up: Either this is a sign of a lack of confidence in prospects for the core [Sainsbury] business (exacerbated by the purchase of Argos, generally viewed as a structurally challenged entity) or a positive step in anticipating how the customer journey will develop in a multi-channel world. Leverage and lack of expertise in this area suggests making a positive case won’t be easy. So is there any merit whatsoever in the idea? Possibly. What’s the point of Argos? It sells cheap electricals. Here’s the pie chart, via RBC: Argos has spent the last few years trying to organise its catalogue-based network into a “hub and spoke”‘ system, whereby the biggest 170 of its 750-ish stores act as depots that feed smaller local distribution points. The idea was to offer 20,000 products on next-day or better collection, ordered either on the website or via in-store captive iPads. Operationally, it was a nightmare. Stock availability proved impossible to manage at the hubs, while about a third of reservations went uncollected at the spokes. Operating costs nudged higher with no visible benefit to revenue. Profit warnings followed. Under relatively competent management (which has, historically at least, been Sainsbury’s strength) and with the efficiencies of scale provided by folding Argos into Sainsbury’s owned logistics network, things might improve. Might. How might Argos and Sainsbury stores fit together? Sainsbury takes an estimated 10 per cent of sales from non food via about a fifth of its floorspace. Non food is higher margin than groceries, which offsets the lower sales density. Sainsbury has focused its non-food push on clothing, which has done double-digit growth for the last few years, so the overlap with Argos’s product base isn’t that big. Sainsbury recently identified circa 1.5m square feet of food retail space it wants to convert to non food, half of which would go to third-party concessions including Argos. Home Retail last year opened ten Argos collection desks within Sainsbury’s stores, similar to those it is putting in its own Homebase chain. The desks offer around 2,000 products available for pick up within a few hours. A normal Argos store does about £370 in revenue per square foot, which is rubbish compared with Sainsbury’s ~£1,100 PCF. But the Homebase desks do about £1,500 per square foot, which is about ten times the revenue density in Homebase’s remainder. There are nearly 600 Sainsbury’s supermarkets in the UK, of which 434 are over 20,000 square feet. Those are the ones big enough to insert an Argos. But putting a counter into all of them would more than double the number of Argos outlets: that’d be a big project to entrust to a third-party supplier whose management has a history of over-complicating things. Wouldn’t most Argos stores become redundant? Yes. But Argos stores are nearly all rented, not owned. More than half its leases either have break clauses or will expire within the next five years, meaning the cost of shrinking should not be too onerous. (Whether it’s the right half is impossible to guess.) Plus, the overlap between Sainsbury’s leased convenience stores and the Argos fleet would put an enlarged group a much stronger position to negotiate better terms with its landlords. What about Homebase? Common wisdom says the DIY chain has been unofficially for sale for months and is operating at around breakeven. Product overlaps and similar dissynergies might be problematic, but otherwise it’s irrelevant to the discussion. Sainsbury owned Homebase until 2000 and doesn’t want it back. Valuation? Home Retail has £200m of net cash and runs a net loan book of circa £550m. Even after today’s 37 per cent share price pop, its market cap is still only £1.1bn. Last year, operating cashflow was about £200m, essentially all of which comes from Argos (see above). Subtract the cash, the loans, and the capex spent on the Homebase stores, and it looks as if the core Argos business is being valued at little more than one year’s trailing earnings. So will Sainsbury bid again? Dunno. The guidance from people familiar is to assume nothing. But with Sainsbury management keen to talk up the potential of the deal (in spite of the negative market reaction) as well as keeping advisors retained, it’s fair to assume that work continued ahead of a Panel deadline of February 2. Other bidders? Maybe. It’s no secret that Home Retail has been the subject of numerous M&A pitchbooks during the back half of 2015 — which fed into press reports including a Sunday Times‘ “predators plot …” splash at the end of November, as well as more speculative stuff referencing Amazon and Wal-Mart. Bidders might be attracted to the securitisation potential of Home Retail’s big loan book, its high capex budget and its potentially generous tax rate of 24 per cent. But there are also hurdles, particularly for private equity, which would have problems digesting the £333m of annual lease liabilities and a pension deficit last valued (in March 2012) at £158m. Leverage also looks difficult, at more than four times EBITDA adjusting for leases. What about Crispin Odey? It might be cause for schadenfreude that Mr Odey went public with his bet against Home Retail in December, when the shares were around 105p. (At pixel time they are 137p.) What might be overlooked is that Odey Asset Management is also short Sainsbury, disclosing a 0.95 per cent position just before Christmas, which makes a useful (and probably accidental) hedge. Sainsbury is the second most-shorted FTSE 350 stock, with 23.8 per cent of its free float on loan to short sellers, according to Markit. Home Retail is 16th, with 9.8 per cent of the free float loaned out. What does the sellside think? Not keen. Sainsbury looks to be showing “the ambition of Amazon as it pursues a credible food offering,” says Jefferies. “The bear case would conversely focus on the fact that HOME’s efforts in matching Amazon’s exacting service standards is proving stretching (and a tough act to follow without consequences to margins). In addition, there is little that Sainsbury can add in terms of expertise in non-food multi-channel offerings, and as a result the potential acquisition of what is largely viewed as a structurally challenged business will raise some eyebrows.” Tony Shiret of Haitong goes through the five pillars, demolishing each in turn, before concluding: “We are not saying that the deal will not happen. But it makes no strategic business sense in our view.” He says: In omni-channel we are surprised that Sainsbury would consider that it does not have the expertise in this area already. Also the complexity of omni-channel would be far greater in Non-Food than food so it would be acquiring a big step-up in complexity for relatively marginal benefits within its own offer. Space optimisation is great in theory but complex and costly to deliver. Also there is a clear need to downsize both the Argos and Homebase estates and no compelling reason to want to increase the Sainsbury estate overall. Obviously one could make an argument for expansion of the convenience store estate. But we would have thought that shareholders of food retailers would have got past the point of accepting any capacity growth given the wider problems being faced. Financial services seems to be a non-synergy – or marginal benefit at most. In considering synergies these are set out as buying and opex related. Clearly there should be some synergies and given the current and expected profitability of stand-alone HRG these could be material in the context of the HRG overall profit and thereby the price Sainsbury might be prepared to pay. But that is not the point. This type of acquisition will not solve either side’s competition related problems. After any initial scale benefits would the combined non-food business be in better shape to compete? What is clear is that the increased complexity would likely distract the management of Sainsbury in particular. It is interesting to note that Tesco and Morrison are pursuing strategies of getting the core operations right and getting rid of peripheral businesses. Citi’s Assad Malic isn’t keen either: The rationale [...] seems to focus around leveraging the c750 Argos stores in the UK where the average lease length is still 5 years and [Sainsbury's] owned home delivery network with nationwide coverage. However, is difficult to see how this could be leveraged cost effectively to fulfil both grocery and non-food at scale together. Additionally question marks would exist on where this would leave the Homebase business given the large level of buying synergies which exist between the two divisions. With the shares now trading at an EV/EBIT of 8.2x it would be harder for Sainsbury to justify paying a such premium when it is already benefiting from Argos concessions and has a decent non-food offer. Ditto Bruno Monteyne at Bernstein, who says Sainsbury’s “not fighting the right fight”. Argos is “skewed towards less affluent people”, which makes a combo with Sainsbury “seem at odds with the current trends towards polarisation of product offers”, he says: We struggle to see the strong business rationale for Sainsbury’s to buy Home Retail. Financially there could be a long term argument if they can sell Homebase for a good price and are able to materially reduce the Argos space (by moving their operations into nearby Sainsbury’s stores) or materially reduce their rent bill (by renegotiating terms as they have short lease, average of 4.9 years). However this feels like clutching at straws and we don’t see a strong business rationale to combine a relatively upmarket food retailer with a relatively downmarket non-food retailer. Rather than accelerating Sainsbury’s non-food or online growth organically, this adds the complexity of integrating a wholly different business and extracting synergies. It also changes the investment thesis on Sainsbury’s. Instead of being a quality-differentiated retailer generating a lot of cash to de-lever or increase share-holder returns, it becomes a complex merger case. From our discussions no investor was looking for this kind of deal for Sainsbury’s and will have to re-assess why they own Sainsbury’s shares. Bears on the company will see that as a sign of desperation with the core business rather than the accelerated growth management sees in it.

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