Stock of the day 28/09/2015 – J Sainsbury PLC

As the supermarket wars continue, with Aldi’s announcement that it is launching online-shopping the latest shot fired, Sainsbury’s has begun to slide once again after months of lateral movement.

Can its Q2 2015/16 trading update on Wednesday prevent the stock tumbling beyond the 6 year low seen almost exactly 12 months ago?

After opening the year at £2.46, things got off to a fairly decent start for Sainsbury’s; towards the end of January the stock had risen to £2.76, fuelled by a better than expected Christmas period. Not that better equated to good; sales still slid by 1.7%, a figure that was merely lower than 2.8% drop suffered the year before.

In a movement that was to be repeated across much of the year, Sainsbury’s managed to hold onto that £2.70ish mark across February and the start of March, only to tumble towards £2.60 in the middle of the month as same store sales fell by 1.9% for the 10 weeks to March 14th, with the added warning that the supermarket sector situation remains ‘challenging for the foreseeable future’. It then lingered around the £2.60 mark for the rest of March, before a mid-April surge took Sainsbury’s to a meagre 2015 (and 7 month) high of £2.88.


(Source: IT-Finance.com 28/09/2015)

That high couldn’t last and the stock was soon in a familiar trading bracket of £2.60 to £2.70, with a brief foray to the £2.80 in the aftermath of the UK election results. That post-election rise helped obscure the fact that Sainsbury’s had reported its first annual loss (of £72 million) in a decade just 2 days earlier on May 6th, a report that also contained a 14.7% drop in pre-tax profits to £681 million alongside a 1.9% drop in like-for-like sales.

However, that fact soon took hold of the stock as the Tory-victory dust settled, and caused Sainsbury’s to fall from £2.81 on May 11th to £2.44 on June 2nd, its lowest price since mid-January. In a true showing of how bad things have gotten for the stock, a 2.1% drop in sales for the 12 weeks to 6th June (its 6th successive quarter of declining sales) was seen as a positive due to it being slightly better than expected, lifting the stock back to £2.76 by the end of the month.

A choppy July then saw the stock fall to £2.53 before rising once more to £2.75 then back down to £2.60 in the course of 3 weeks, before the sale of the supermarket’s pharmacy business to German company Celesio saw it approach £2.70 in early August. However, that price was soon to become a distant memory for Sainsbury’s, as the China-inspired price-eroding movements of August pushed the stock below its year starting price, only for the supermarket to fall even further in September, at one point hitting a low of £2.21 in the middle of the month. It is currently trading at £2.27 (IT-finance.com, 28/09/2015), only 14p higher than its 6 year low of £2.13 hit at the start of last October.

In terms of its results on Wednesday, Sainsbury’s is expected to post a 1.2% drop in sales, a figure that is an improvement on the 2.1% fall seen in the previous quarter, and a number that leaves the supermarket in a better position that its Big Four rivals Tesco, Asda and Morrisons.

Sainsbury’s has a consensus target price of ‘Hold’ with an average target price of £2.45.