I LIKE SAINSBURY’S
I am a fan of Sainsbury’s. I like their food and I like their prices. I also like my local store, because they have a convenient underground car park and they even have electric car charging ports outside. These are not the main reasons why I own some of their shares, but they are certainly contributing factors. As a former (very brief) employee, I know what they’re like on the inside (I loved working there), and I was very sorry to have to leave the company due to moving abroad.
WHAT HAPPENED RECENTLY
Sainsbury’s shares took a fair dip on Friday, but what was the cause of this sudden drop? Well, it is not really anything that Sainsbury’s have done, but what has happened in the grocery retail sector recently:
- Tesco issued a profit warning
- Tesco cut their interim dividend by 75%
- Discount retailers Aldi and Lidl have grabbed a lot more market share
But wait, that’s facts about other companies. What has this got to do with Sainsbury’s? Well, Tesco are by far the largest grocery retailer in the UK. At their height, more than 15% of all money spent in the UK went through their stores. Crazy! Such a large retailer obviously had a lot of stores and major control of the market. However, I sold my shares in Tesco a while back and I eventually bought into Sainsbury’s instead. Tesco have whopping debt levels. They basically took on too much too soon. Their American adventure ‘Fresh n Easy’ was a disaster. They also had a bit of a disaster in their Chinese venture. When such a large company starts to suffer problems, it can have the effect of ‘drag’, pushing down the prices of other companies in the same sector – even though they may not be suffering any problems at all.
TESCO IN ‘DRAG’ (lol)
This is basically what happened on Friday 29th August. Tesco was down 6% because of the profit warning and dividend cut. Tesco went into drag mode. People got scared and started selling these similar companies:
- Wm. Morrison
- Marks and Spencers (sell some grocery)
- Next (they don’t even sell grocery?!)
Anyway, just take a look at Sainsbury’s fundamentals. They are close to 6% yield, P/E now at 7.7, and 37.7 EPS.
CAN TESCO’S PROBLEMS REALLY AFFECT SAINSBURY’S?
I think the main problem that the major supermarkets face is the threat of discounters Aldi and Lidls acquiring more market share. So yes, this aspect can affect all the main players. However, Sainsbury’s are partnering with Netto, the Danish discounter, which used to be around in the UK years ago. This may help prevent Sainsbury’s losing market share to the Germans. Sainsbury’s own brand also has a better reputation than Tesco – remember the horsemeat scandal? Did you see anyone shopping for beef in Tesco then? No. But I still saw people shopping for beef in Sainsbury’s…
The other thing is that both Tesco and Sainsbury’s have their CEO’s changing. Tesco’s perhaps needed to take the fall for the misadventures overseas, but Justin King of Sainsbury’s never had such problems. I await the new CEO’s moves with anticipation…
I’m planning to buy more Sainsbury’s shares in October, before the next ex-div date.