Sainsbury (j) Share Discussion Threads

[loganair] 09/1/2020 20:05

3 reasons why I’d buy Tesco shares and sell Sainsbury’s:


The Tesco (LSE: TSCO) share price rose modestly this morning, after the UK’s biggest supermarket reported “strong” Christmas trading despite “a subdued UK market”.

In fact, Tesco’s UK sales were flat over the holiday period, but even so, investors were pleased.

In contrast, J Sainsbury (LSE: SBRY) reported rising sales over Christmas on Wednesday, but the smaller supermarket’s share price fell.

Tesco shares have risen by over 15% over the last year. Over the same period, Sainsbury’s have fallen more than 15%. Here’s why I think the market is right to be bullish about Tesco and worried about Sainsbury’s.

1. What’s the point of this business?

Sainsbury’s shares currently trade at a 36% discount to their net asset value of 357p per share. This is unusual for a profitable retailer. Tesco stock, for example, trades at a 76% premium to its net asset value of 143p per share.

Sainsbury’s valuation means that its shares trade below the breakup value that might be achieved if its property portfolio and banking business were sold. I can only see one reason for this, which is that the group’s trading business is not currently profitable enough to justify its existence.

Looking back over the last year, Sainsbury’s reported an operating margin of 1.9% and a return on capital employed of 3.3%. I don’t think that’s enough of a return to justify the money tied up in the group’s operations.

In contrast, the equivalent figures for Tesco were 4.0% and 6.4%. Those are much more appealing numbers, in my view.

2. Why are Sainsbury’s margins so low?

In my view, Sainsbury’s has two main problems.

One is that the group has tried to maintain its upmarket reputation while cutting prices to be more competitive. Competing with Tesco is tough, given the larger firm’s economies of scale.

I believe that the second problem is Argos. I was bullish on this acquisition at the time. But I’ve since changed my mind. Argos has to compete against larger retailers such as Amazon and Dixons Carphone on high-value sales. Profits margins are very slim indeed – lower than for groceries, according to my sums. The end result is a business that turns over lots of cash, but appears to make very little money.

In contrast, when Tesco went looking for new growth opportunities a few years ago, it decided to expand into wholesale. The acquisition of Booker provided growth and higher-margin sales. It was a very smart deal, in my view.

3. The growth problem:

Talk of growth leads me to the final reason why I’d buy Tesco instead of Sainsbury’s.

In 2014, Sainsbury’s reported an after-tax profit of £716m. Last year, that figure was £186m. The group has not yet figured out a way to return to growth.

Tesco has had problems, too. But in 2014 it reported a net profit of £970m. By last year, that figure had recovered to reach £1,320m.

The outlook for the year ahead mirrors this pattern. City analysts expect Sainsbury’s to deliver earnings growth of about 2% in 2020/21. Forecasts for Tesco suggest that its earnings will rise by about 8% over the same period.

For me, it’s an easy choice. Sainsbury’s 4.6% dividend yield may be tempting, but I think the business has problems that will be tough to solve. I’d feel much more confident buying Tesco for my portfolio.

[loganair] 08/1/2020 08:46

Sainsbury’s performance in the period has turned out to be slightly better than its competitor, WM Morrison Supermarkets PLC (LON:MRW), which yesterday reported a 1.7% decline in LFL sales for the 22 weeks ending 5 January.

However, both Sainsbury’s and Morrisons have failed to provide specific figures for trading over the Christmas period, which has raised questions from some commentators around the true nature of their performance in the festive season.

[tim 3] 08/1/2020 08:07

Does not look too bad on the face of it.

[skinny] 08/1/2020 07:12

.

Strong grocery performance and online growth as we create one multi brand, multi-channel business

· Grocery sales grew 0.4 per cent, with Groceries Online up 7.3 per cent

· Clothing sales grew by 4.4 per cent

· General Merchandise sales declined by 3.9 per cent

· Total online sales grew by 5 per cent

· Total retail sales declined by 0.7 per cent (excl. fuel), with like-for-like sales down 0.7 per cent (excl. fuel)

more.....

[loganair] 06/1/2020 16:19

3 FTSE 100 dividend stocks I’d buy for a passive income today by Rupert Hargreaves:

J Sainsbury:

Shares in J Sainsbury (LSE: SBRY) also appear to have been held back by investor uncertainty recently. Political uncertainty has hurt consumer spending, which has weighed on the share prices of consumer-focused stocks.

Alongside this, Sainsbury’s is also facing disruption in its sector. The rise of the German discounters Aldi and Lidl, have nibbled away at the company’s market share and earnings have taken a hit.

Nevertheless, growth should return this year. Analysts have pencilled in a net profit of £462m for 2020, up from £186m for 2019. As such, this could be an excellent opportunity for long-term investors who are willing to look past Sainsbury’s near-term troubles.

The stock supports a dividend yield of 4.6%, which is covered 1.9 times by earnings per share. It is also dealing at a forward P/E of 11.7, suggesting a margin of safety at current levels.

[loganair] 06/1/2020 15:14

The last Kantar update in early December gave Aldi/Lidl a combined market share of 14.1% which was up from 12.7% a year earlier.

This means during 2019 Aldi/Lidl increased their market share by 1.4%.

[topvest] 29/12/2019 11:07

Nice company Sainsbury and good for customers. However, their finances are pretty awful. Return on capital is very low and reducing on a 5 or 10 year view. Investing more for less. Not a great company to invest in. A good company to shop in though!

[poikka] 29/12/2019 09:15

Popped into Sainsbury's just before Christmas at about 13.30, and they seemed to be coping well with a goodish number of customers. Said to the check-out lady that it was quieter than I expected. She said that it had just quietened-down and that it was "hideous" up to 13.00.

"Hideous", lovely :)

[loganair] 27/12/2019 11:15

Upmarket brands:

2020 could see a significant increase in the number of so called ‘fancy’ brands. Own brands continue to be core to fast moving consumer goods in terms of differentiation, and therefore footfall, as well as providing maximum margin. However, as Aldi and Lidl continue to resonate with customers with their broad range of own brands, mainstream retailers will continue to explore the use of premium brands, own brands that don’t necessarily name the retailer but continue to provide differentiation and margins.

Sainsbury’s is one retailer investing heavily in its ‘Taste the Difference’ range. A rebrand of its range, including recipes, packaging and introducing new lines began in 2019 and this is expected to continue into 2020. Expect this theme to continue across the major grocery retailers.

[imperial3] 23/12/2019 13:47

Still creeping up.

[loganair] 23/12/2019 12:46

Value trap? by Paul Summers

Also providing an update on trading next month (8 January) is the UK’s second-biggest supermarket J Sainsbury (LSE: SBRY).

Times have been tough for the business following its failed merger with Asda at the hands of the Competition and Markets Authority back in April. Indeed, in a year when the FTSE 100 has put in a great performance despite Brexit headwinds, Sainsbury’s stock is down 10%.

Contrarians and value investors will be running the rule no doubt and it’s quite possible that the share price could jump if CEO Michael Coupe announces that trading has been even marginally better than expected.

On 12 times earnings for FY20, however, I don’t think the current valuation is worth getting excited about. The 4.6% dividend yield is undoubtedly attractive and covered 1.9 times by expected earnings, but this can be achieved elsewhere at less risk, in my opinion.

[loganair] 18/12/2019 19:07

Have £10k to invest? I’d ditch buy-to-let and buy this FTSE 100 shares right now:

Sainsbury’s

Weak consumer confidence may cause many investors to determine that now is the wrong time to buy Sainsbury’s (LSE: SBRY). The supermarket has experienced tough operating conditions for many years, with a high degree of competition and an increasingly online-focused operating environment contributing to a disappointing financial period.

The retailer’s recent update highlighted some of the changes it is making to its strategy to improve its performance. This is partly in response to the disappointment that came about after the deal to merge with Asda fell through. As such, Sainsbury’s will seek to cut costs, close unprofitable stores and invest in pricing to improve its competitive position.

These changes may lead to higher costs in the short run, but they could strengthen its position versus other supermarkets. Furthermore, with wage growth and unemployment levels being relatively strong, consumer confidence could improve over the long run. This may cause shoppers to be less price-conscious and more interested in other factors such as convenience and quality. Sainsbury’s could, therefore, experience an improving operating environment.

With its shares currently trading on a price-to-earnings (P/E) ratio of just 11.7, they seem to offer good value for money. Its dividend yield of 4.6% suggests that an impressive total return could be ahead in the coming years.

[loganair] 17/12/2019 15:48

Asda triggers search for new finance chief as IPO plans ramp up.

Asda has reportedly engaged a corporate headhunter to find a new finance chief to spearhead a float of the Walmart-owned supermarket chain.

Divesting Asda would allow Walmart to channel its energies on emerging markets such as India where it now has a controlling interest in online retailer Flipkart.

[ny boy] 16/12/2019 20:39

Yep, on track now, thanks to that blonde man Mountain lol!

NY Boy - 07 Nov 2019 - 08:19:51 - 20519 of 20587 SBRY

Yeah enough to see the share price rise, onwards to 250p + Santa rally lol

[loganair] 16/12/2019 20:30

£1k to invest? I’d buy the Tesco share price ahead of Sainsbury’s by Harvey Jones:


As the year draws to a close, I decided to take a sentimental look at some of my old stock picks from the start of the year, and this one leapt out from January. Why I would sell the Sainsbury’s share price today and buy Tesco.


Different directions:

Happily, that proved to be a good call, because Sainsbury’s has seen its share price fall by 27% in the last year, while Tesco has shot up in the opposite direction, climbing 20%.

Both started the year in a bad place, with the Sainsbury’s share price down 17% over five years, and Tesco down 30%, as they wilted under the Aldi and Lidl onslaught. I favoured Tesco because it boasted superior earnings growth, operating margins and return on capital employed. I have also been impressed by Dave Lewis’s energetic turnaround plan since joining Tesco in 2014, although I also admired Sainsbury’s boss Mike Coupe’s £1.4bn Argos acquisition, which appears to have paid off so far.

Going head to head:

What I couldn’t know at the time was that the Competition & Markets Authority would block Coupe’s bid to merge Sainsbury’s with Asda, although I knew it was a risk, given that the new group would have a total market share of more than 30%. It was a step too far for Coupe, and Sainsbury’s is now searching for a replacement. So would I still favour Tesco over Sainsbury’s today?

Tesco is by far the bigger operation now, with a market-cap of around £24bn. I was surprised to see how far Sainsbury’s has shrunk, as it had now dipped below £5bn. Perhaps inevitably, given recent underperformance, Sainsbury’s is cheaper trading at 11.2 times forward earnings, but Tesco isn’t that much more expensive at 13.6 times.

Going for growth:

The best reason for buying Sainsbury’s is the yield, which now stands at a forecast 4.8%, with cover of 1.8. Tesco is still in the process of restoring its dividend, so today’s 3.5% payout looks disappointing, although cover of 2.1 gives scope for further growth.

Operating margins of 2% at Sainsbury’s are lower than Tesco’s 3.2%. The difference in return on capital employed is cavernous by comparison, 3.2% at Sainsbury’s, against 13% at Tesco.

The earnings are the real clincher. Sainsbury’s is in a spiral, with earnings down in four of the last five years, and the negative trend forecast to continue this year and next. Tesco, by comparison, has delivered earnings per share growth of 65%, 82% and 12% over the last three consecutive years, and that looks set to continue, with analysts predicting 13%, 10% and 8% over the next three.

Same again, please:

The Tesco share price has been given a further lift by its plans to offload operations in Malaysia and Thailand. Barring accidents, Lewis will move to fresh pastures next year bathed in glory following a successful turnaround operation.

Now some investors like to sell their winners, and that’s tempting here because, surely, Sainsbury’s is ready for a comeback? However, I still favour Tesco because it appears to boast the better bottom line. I’d buy it ahead of Sainsbury’s once again.

[chiefbrody] 15/12/2019 16:27

So mortgages etc all being offloaded by the supermarkets.Another great investment. Not.Like to see them improve margins on their core business before they start taking on the banks etc.

[poikka] 15/12/2019 14:24

Interesting to see how much the hike in the value of the £ will benefit retailers' profits - assuming that it continues.

[loganair] 13/12/2019 17:57

Sainsbury’s is fielding takeover interest in its £1.9bn mortgage book after following larger rival Tesco in exiting the British home-loans market.

The supermarket giant is running the role over offers from bidders including Lloyds Banking Group.

However, other large lenders including Royal Bank of Scotland and Santander UK have not put forward proposals.

It marks a further stage in an overhaul of Sainsbury's Bank under Jim Brown, the former RBS executive who was installed as the head of the grocer's financial services arm earlier this year.

Sainsbury's said last month that a recent £35m capital injection into its bank would be the final such investment as it seeks to put the business on a more sustainable footing.

At £1.9bn, the supermarket chain's mortgage book is about half the size of Tesco Bank's, which was sold in the summer to Lloyds.

The capital-intensive nature of mortgage lending, combined with a price war in the sector which has hurt margins during an era of ultra-low interest rates, has made it a less attractive proposition for many smaller banks.

Sainsbury's Bank has about 2.1 million customers across a range of financial services.

Argos Financial Services, which is also owned by the UK's second-biggest grocer, has a similar number of customers.

In its half-year results statement, Sainsbury's said it had seen "broadly flat" income in the banking division, with total financial services underlying operating profit for the year expected to be around £45m.

Supermarkets' foray into financial services has produced modest results over the last 20 years.

Despite their enormous "branch networks" in the form of their stores, Sainsbury's and Tesco have made comparatively little effort to take on the major high street lenders.

The grocers' decision to exit the mortgage market comes during a period of growing competition from a cluster of digital banks such as Atom Bank and Monzo.

In addition to mortgages, Sainsbury's Bank offers car and home insurance, foreign currency and credit card products.

[imperial3] 13/12/2019 10:51

Who cares but you?

[alphorn] 13/12/2019 10:24

Took the opportunity this morning to exit all Sainsbury positions. Remain in Tesco.

[loganair] 12/12/2019 14:48

In the past few years sadly Sainsbury's management haven't come up with any good or inovative ideas on how to increases margins or profits.

All the management have done is to cut prices to try and maintain market share at the expense of margins and profits and to buy the low margin business of Argos.

Now that the low hanging fruit of Argos costs have been striped out, moving Argos stores into Sainsbury's stores has all but be done there seems to be no now extra profit to be made from owning Argos.

[jobber1] 12/12/2019 14:24

Typical Sainsbury's Thursday. Footfall lower,prices up and down like a yoyo.
Trying to push customers into using the self service isles. Wny do we put up with it, they are a busted flush. Got a great car-park, but even a cartel on the petrol prices. I am not looking to buy their shares.

[chiefbrody] 09/12/2019 21:14

Quadrupled in 2 years.What P/E Ocado mind....