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Sainsbury’s new direction needed

Sainsbury’s investors can comfort themselves with thought that while things aren’t great at the grocer, they aren’t getting any worse either.
April 28, 2021

 

  • Pandemic-linked demand offset by increased costs
  • Impairments split between retail assets and financial services

The bid rumours that had swirled around J Sainsbury (SBRY) prior to these results were considerably more interesting than the supermarket’s largely flat operational performance. The grocer hit its guidance for underlying profits at £356m, while management looks set to please income investors by formally prioritising dividend payments over the reduction of debt. However, that still leaves the question as to whether chronic underperformance will continue to trouble Sainsbury’s once the pandemic subsides.

As has been the experience with the other big supermarkets, the trading advantage granted by pandemic regulatory restrictions were more than offset by the costs those restrictions imposed – £485m in Sainsbury’s case, with another £220m of impairments split more-or-less evenly between retail assets and financial services. However, it did provide a big boost to the company’s traditionally lagging online sales operation, now 17 per cent of total grocery sales, up from 8 per cent. Overall, like-for-like sales growth, including fuel, was up by 0.7 per cent for the year – excluding fuel, this was 8.1 per cent.

Sainsbury’s bank needed no further capital injections, though on a statutory basis, it lost £21m. As far as debt repayment goes, management expects non lease net debt to reduce by £950m over a four-year time frame.

Bid rumours have put a floor under share price but, according to ShortTracker, Sainsbury’s is still one of the most shorted shares in the FTSE with 6.9 per cent of its shares lent out. With a track record of underachievement that goes back many years, we see no reason to change our advice. Sell.

Last IC View: Sell, 203p, 5 Nov 2020

J SAINSBURY (SBRY)   
ORD PRICE:239pMARKET VALUE:£5.3bn
TOUCH:238-239p12-MONTH HIGH:263pLOW: 172p
DIVIDEND YIELD:4.4%PE RATIO:NA
NET ASSET VALUE:296pNET DEBT:81%*
Year to 6 MarTurnover (£bn)Pre-tax profit (£m)Earnings per share (p)Dividend per share (p)
201726.250317.510.2
201828.540913.310.2
201929.02027.6011.0
202029.02555.8010.6
202129.0-261-13.010.6
% change+0.2---
Ex-div:10 Jun   
Payment:16 Jul   
*Does not include £248m in Perpetual Securities coupons