Sainsbury’s managed its first quarterly rise in sales for two years as like-for-like retail sales nudged up just 0.1% (excl. fuel) in the nine weeks to 12 March. Here’s what the analysts covering the stock have to say about the fourth quarter trading update and the still-awaited improved offer for Argos owner Home Retail Group.
Bernstein was impressed with the ahead of consensus growth in like-for-like sales, with most expecting -0.3% from Sainsbury’s for the quarter, calling the results “an excellent sales performance… well ahead of inflation.
“This is another good set of results for Sainsbury’s, returning to positive like for likes, showing it continues to outperform the other supermarket chains,” analyst Bruno Monteyne said. “It is encouraging that it is doing this not just by investing in price but by focussing on quality as well. The next big step is the Home Retail bid deadline on Friday, where we would expect Sainsbury’s to raise its bid.”
Independent analyst Nick Bubb was less impressed by the performance and said the headline for the trading update by Sainsbury’s (“Positive like-for-like Retail sales growth (exc fuel) for the first quarter in over two years”) was a “little inelegant” as the supermarket fought hard to keep its share price moving up ahead of its battle for Argos with Steinhoff.
“Truth be told, however, 0.1% LFL sales growth is rather modest and is not a great surprise, given the slight calendar boost,” Bubb added.
John Ibbotson, director of the retail consultancy Retail Vision, highlighted that Sainsbury’s was in “relatively good shape” in the turbulent grocery sector and was adapting better than most to market conditions.
“Its convenience stores and strong internet offer are coming into their own, and it has few of the burdensome hypermarkets that are holding back Tesco,” he said. “Mike Coupe’s back-to-basics emphasis on simplifying the grocer’s trading strategy and keeping regular prices low appears to be working.”
HSBC worried about the harm a strengthening Tesco would cause Sainsbury’s as the wounded leviathan of British grocery continues its recovery. David McCarthy said Sainsbury’s was doing a lot of things right: “Store standards and clarity of offer are very good and are amongst the best in the industry. The move to simpler pricing is industry leading and has long been needed (by the industry) as a tool for competing with discounters.”
However, he added the reason for keeping the target share price on a ‘reduce’ rating centred around Sainsbury’s overlap with Tesco. “We believe Tesco is making good progress in its road to recovery and as this gathers pace Sainsbury will be hurt as Tesco wins back disaffected shoppers. A lot of Sainsbury’s relatively good performance over the last 5-10 years was in our view down to Tesco mismanagement and Tesco putting its shoppers ’in-play’, which Sainsbury’s took advantage of. To us, it looks increasingly likely that Tesco is starting to win these shoppers back. This will impact Sainsbury’s sales, its profits through high operational gearing, and its ability to deleverage its balance sheet.”
Clive Black at Shore Capital looked firmly ahead to the ‘put-up-or-shut-up’ deadline in the fight to secure Home Retail: “All eyes are now on the 18th March deadline for any further bid to acquire Argos, in which the British grocer still faces formidable competition from German-listed Steinhoff. We expect Sainsbury to try again.”
Jefferies was also more interested in the Home Retail bidding war outcome rather than the “solid” trading update. The investment bank reckons a better offer from Sainsbury’s would likely still miss out to a sweetened all-cash counter bid from Steinhoff. “As it stands, the current 50/50 shares/cash Sainsbury offer translates into 172p against the all-cash 175p on the table from Steinhoff. As we outlined last week, the Steinhoff recent bid for Darty suggests that Argos may be part of a wider plan to create a regional champion in the electricals area.
“If true, the synergy disadvantages that Steinhoff suffers vs. Sainsbury (in particular, the speed and extent by which the Argos’ lease portfolio can be restructured thanks to the high natural levels of footfall enjoyed by Sainsbury’s) could well be offset by meaningful longer-term buying synergies. It could be that a sweetened Sainsbury offer would be quickly countered by Steinhoff further upping the ante.”
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