A nice share price boost from its Christmas trading statement did not last long for J Sainsbury plc (LON:SBRY).
The supermarket of choice (if Waitrose is too far away) for southern softies has the broker community divided, with eight taking a neutral position; three rating it a ‘strong buy’ against four rating it a ‘strong sell’; two rating it a ‘buy and one rating it a ‘sell’.
So, basically, it is a “hold”, and in this market, with the Footsie scaling new heights, a ‘hold’ is a ‘sell’, right?
Five reasons to exit the stock
Marks & Spencer providing food for thought
The good news is that Sainsbury’s is not Marks & Spencer. The bad news is that Marks & Spencer may not be M&S as we know it for much longer, with the new boss, Steve Rowe, spotting the obvious: that Marks & Sparks has become a lot better at food retailing than selling clothes.
The word is out that Marks & Spencer will beef up its presence in food (and possibly especially in lasagne).
Its target market is much the same as Sainsbury’s and unlike when they are shopping at Aldi or Lidl, Sainsbury shoppers won’t have to hold their noses when shopping at Marks & Sparks.
While my Qatar gently weeps
The investment vehicle Delta Two, owned by the Qatari royal family, had a £10.6bn, 600p a share offer for Sainsbury’s rejected back in 2007. The shares are now trading at about 260p.
The Qatar Investment Authority owns around 25% of Sainsbury’s stock, and that is certainly a fantastic launching pad for a bid. Unfortunately, in ten years, a bid has not materialised, and if it is a great launching pad for a bid, it is also a mighty impediment to one, as is the 14% or so held by the Sainsbury family.
There were reports back in April that the long-awaited move by the Qataris to realise some value from their investment (apart from the dividends received) was about to happen, but Sainsbury’s controversial acquisition of Argos seemed to put the kibosh on any bid from private equity sources.
Aghast at Argos acquisition
Ah yes, Argos. The acquisition that divided City opinion: some thought it was a terrible move, others a disastrous one.
Argos has a very nice web site, and a different demographic to the usual Sainsbury customer, but is it really going to out-Amazon Amazon?
Still, at least Sainsbury’s pays its taxes.
Argos’s future may be as a “click and collect” destination for people who have bought stuff on eBay and Amazon.
At least it’s not Asda
Thank God for Asda. It seems to be the only one of the so-called Big Four not sharpening up its act.
Tesco is back to throwing its weight around in the sector, but in a nicey-nicey (ahem) ‘champion of the consumer’ sort of way, while Morrisons looks like it might have righted its ship.
Outside of the big four, Aldi & Lidl continue to grow in the space once occupied by Kwik-Save and even the Co-op is on the rise.
Market share data from research group Nielsen covering the 12 weeks to the end of 2016 showed the strongest Christmas in four years for the food retailers.
“There are signs that Morrisons gained momentum towards the end of the period and that ASDA showed some recovery,” noted HSBC.
“Sainsbury’s saw its relative under-performance widen but may point to its shift to fewer promotions being a head-wind. Nielsen suggests industry promotions have fallen to their lowest level in six years at 27% of sales, with Sainsbury lower still,” HSBC added.
In the final quarter of 2016, Sainsbury’s like-for-like (LFL) sales were down 0.2% year-on-year and its market share had fallen from 16.1% at the start of the quarter to 15.8%.
A 0.2% decline in LFL sales is not that bad in this low inflation environment, but it has posted LFL falls in seven out of the last eight quarters.
Is this a sector you want to be in?
Defensive qualities apart, the cut-throat supermarket sector is getting tougher; Sainsbury remains a skilled operator, but cost inflation appears to be an increasing head-wind for the sector.
“However, we expect the major food retailers to act more responsibly than in the last cycle. We would expect them to look to absorb as much inflation as possible in order to maintain competitiveness. We would expect this to be led by Tesco, which looks well placed to cope and succeed given its scale advantages and volume growth,” HSBC recently said.