Citi has pointed to renewed pressure on Asda’s funding costs as a potential tailwind for listed UK grocers Tesco PLC (LSE:TSCO) and J Sainsbury PLC (LSE:SBRY), arguing the private business may have less headroom to keep escalating price investment.
The broker noted a recent decline in Asda’s bond prices, with its largest issue now trading at around a 10.5% yield to maturity, up from 9.6% three months ago and 9.4% a year ago.
Citi said that, alongside Fitch’s estimate of 6.9x net debt/EBITDA, suggests limited ability for Asda to raise incremental financing at attractive rates.
Against that backdrop, Citi highlighted that multiple rounds of price investment have yet to translate into a clear sales improvement.
Latest Worldpanel data for the four weeks to 28 December showed Asda till-roll sales down 4.2%, versus total market growth of 3.8% and food inflation of 4.3%.
Nielsen data for the four weeks to 27 December painted a similar picture, with Asda sales down 6.5% against market growth of 2.5%.
Citi added that price trackers show some improvement in Asda’s relative price position, but still short of its stated ambition to be 5% to 10% cheaper than the big four, with Citi estimating the gap is currently around 4% to 5%.