Stock of the day 27/04/2016 – J Sainsbury PLC

It’s certainly been a busy year for Sainsbury’s; can the supermarket mainstay continue its climb when it reveals its full year figures next week?

Since the New Year began the talk around Sainsbury’s has been dominated by the supermarket’s bid for Argos (and former Homebase) owner Home Retail Group. Not that investors initially reacted well to the news, Home Retail’s reveal on the 5th January that it had rejected a £1 billion takeover bid from Sainsbury’s back in November sending the latter lower by nearly 5%. That, combined with the general market turmoil that opened 2016 and a despite a better than forecast Christmas update, left Sainsbury’s at a 5 month low of £2.27 by the end of January.

Yet from that point onwards things began to pick up for the orange supermarket. On February 2nd it submitted a revised bid for Home Retail Group, news that took Sainsbury’s back to £2.68 by the middle of the month, only for a chunk of its gains to be wiped out by reports of a higher rival offer from South Africa’s Steinhoff International. The supermarket wasn’t deterred for long, however, and as March got underway the stock began to test £2.70 for the first time since the previous November.


(Source: IT-Finance.com 27/04/2016)

The good news began to pile up as March continued. On the 15th Sainsbury’s revealed a 0.1% rise in Q4 like-for-like sales, the first quarterly increase for 2 years. Days later Steinhoff dropped its bid for Home Retail Group, leading the supermarket to make a formal offer of £1.4 billion, the takeover confirmed a fortnight later on the 1st April. Add onto that news that Sainsbury’s was set to drop its Brand Match scheme to focus on making shopping list basics like bread and washing powder and by April 20th the stock had hit £2.98, its highest price since September 2014.

There has been a bit of a downturn since that peak, however, the fact that Home Retail Group saw a 28% slump in full year profits, with Argos’ sales flat across the 12 months, sending Sainsbury’s to a current trading price of £2.84 (IT-Finance.com, 27/04/2016).

In terms of the company’s full year update, beyond the hopes of a smaller than expected sales decline (or, far more unlikely, a sales rise), investors will be looking for some kind of indication of how Home Retail Group’s brands, including Argos and Habitat, will be integrated into Sainsbury’s long term plan.

J Sainsbury PLC has a consensus rating of ‘Hold’ with an average target price of £2.59.