Good news for Sainsbury’s investors could spell bad news for Tesco shareholders.
The 3.6% fourth-quarter like-for-like sales growth Sainsbury’s reported this week was a marked improvement on even its own market-beating sales performance in prior quarters.
Even the footnotes to its Q4 trading statement contained good news. Sainsbury’s said the 15% growth it reported for its online business in the third quarter was understated - the actual figure was more than 20%. The shares reacted positively to the news, climbing 1.7% on Tuesday to 371.4p, having already risen almost 8% since the start of the year. “Sainsbury’s is now a momentum play and it usually pays to back momentum in this industry,” said Investec analyst Dave McCarthy.
So where has the step change in performance come from? Nielsen data indicating a 0.2% drop in Tesco sales in February suggests Sainsbury’s has profited from Tesco’s misfortune in the wake of the horsemeat scandal.
On the plus side for Tesco, its shares have yet to follow suit. They have leapt 12% so far this year to 381.45p on Wednesday and now stand just short of their 400p price tag before the profit warning in January last year. But some analysts believe the share price recovery may be short-lived. “Tesco has seen its emotional connection weaken, as it lost price, service and quality perception,” said McCarthy, who has a ‘sell’ rating on Tesco.
Food supplier stocks have also been doing well so far in 2013, suggesting Warren Buffett, with his $23bn buyout of Heinz, is not alone in thinking the food industry is a good place to invest. The FTSE 100 has climbed 7.5% over the past three months, while the FTSE food producers & processors index has risen 14%. “Investors have been attracted to the sector by the combination of good growth opportunities and stable earnings profiles,” said Panmure analyst Damian McNeela.
Irn-Bru maker AG Barr is a typical success story. Against a falling market, its shares edged up 1% in early trading on Thursday to 529p after it reported a 4.3% increase in pre-tax profits to £35m. The company’s shares have risen 18%.
McBride also reported on Thursday. Shares in the home and personal care manufacturer slumped 13% to 120p after it reported a 6% drop in quarterly sales.