The release of full-year figures for J Sainsbury (SBRY), normally keenly anticipated by retail analysts, has been overshadowed by the potential tie-up with rival chain Asda. Under normal circumstances, investors would have focused on the continued drive for efficiency savings across the group, improving food margin trends, or even the performance of Sainsbury's Bank, but their attention may have turned to projected cost synergies, increased access to northern markets, and whether the grocers got a steer from the Competition and Markets Authority (CMA) prior to the announcement of the proposed merger.
Nevertheless, it’s important to understand how the group is faring as a solo concern, particularly as it tries to adapt to an evolving grocery market, a possible point of deliberation for the CMA. Sainsbury’s has already taken steps to improve its position in the sector and defend its market share against discount rivals and the incursion of online threats, specifically Amazon (US:AMZ). It snapped up the Argos chain two years ago, and 191 Argos stores are now open across Sainsbury’s supermarkets. That number should move up to roughly 280 by the end of the current financial year, ahead of the original 250 target. Including sales from Argos branches – but excluding fuel and pharmacy – total retail sales rose by 1.6 per cent last year.
Managers expect to have clawed back approximately £160m in cash profit synergies from the Argos deal by the end of this financial year, which will help the group deliver on wider cost-saving targets. Indeed, over the past year, Sainsbury’s saved £185m, bringing the total to £540m over the past three years, and it expects to have saved a further £500m by the end of FY2021 through investments in digital innovations and by simplifying operations. The rationalisation measures have also helped to reduce the debt pile – this time by £113m – which should give the balance sheet more room for future acquisitions.
Acquisitions have been a dominant theme – not just for Sainsbury’s, but for the entire grocery sector. The recent merger between supermarket Tesco (TSCO) and wholesale chain Booker has changed the landscape immeasurably, something which isn’t lost on Sainsbury bosses. Together, it’s thought Sainsbury’s and Asda could generate sales of £51bn – but upscaling operations doesn’t automatically translate into increased market share. (You could argue that the performance of nimbler, more price savvy rivals Aldi and Lidl suggests that the exhortation of Tesco (TSCO) founder Jack Cohen to “pile 'em high and flog 'em cheap” still provides a surer route to success).
| J SAINSBURY (SBRY) | ||||
| ORD PRICE: | 310p | MARKET VALUE: | £6.81bn | |
| TOUCH: | 310-310.1p | 12-MONTH HIGH: | 327p | LOW: 222p |
| DIVIDEND YIELD: | 3.3% | PE RATIO: | 23 | |
| NET ASSET VALUE: | 315p | NET DEBT: | 25% | |
| Year to 10 Mar | Turnover (£bn) | Pre-tax profit (£m) | Earnings per share (p) | Dividend per share (p) |
| 2014 | 23.9 | 898 | 37.7 | 17.3 |
| 2015 | 23.8 | -72.0 | -8.7 | 13.2 |
| 2016 | 23.5 | 548 | 23.9 | 12.1 |
| 2017 | 26.2 | 503 | 17.5 | 10.2 |
| 2018 | 28.5 | 409 | 13.3 | 10.2 |
| % change | +9 | -19 | -24 | - |
| Ex-div: | 7 Jun | |||
| Payment: | 13 Jul |
