Interactive Investor

ii view: are shares in high yielder Sainsbury's good value?

Sainsbury's shares have underperformed arch rival Tesco over five years, but they're neck and neck over the past 12 months. We assess prospects.

24th November 2023 11:10

Keith Bowman from interactive investor

First-half results to 16 September

  • Revenue up 3.5% to £16.98 billion
  • Adjusted profit flat at £340 million
  • Pre-tax profit down 27% to £275 million
  • Interim dividend unchanged at 3.9p per share
  • Net debt down 11% from late March to £5.64 billion

Guidance:

  • Now expects full-year profit of between £670-£700 million, up from a previous £640-£700 million

Chief executive Simon Roberts said

“Food is firmly back at the heart of Sainsbury’s. We’ve never been more competitive on price and our focus on value, innovation and service is giving more customers more reasons to shop with us. 

“As we head into this key trading period, we are encouraged by our strong momentum and we remain fully focused on delivering for customers and shareholders.”

ii round-up:

Retailer Sainsbury (J) (LSE:SBRY) operates 596 supermarkets, 821 convenience stores and 669 Argos stores, most of which are now located within a Sainsbury's outlet.

Other group brands include Habitat, Tu and Nectar, along with Sainsbury’s Bank.

For a round-up of these latest results announced on 2 November, please click here

ii view:

Started in 1869, Sainsbury's today employs over 150,000 people. Its takeover of Argos back in 2016 means it now has the UK’s third most-visited website. Listed stock market rivals include Tesco (LSE:TSCO), Ocado Group (LSE:OCDO) and even B&M European Value Retail SA (LSE:BME). Retail generates the bulk of sales, with financial services via Sainsbury’s Bank accounting for under a tenth of annual revenue.  

For investors, the tough backdrop for customers including heightened mortgage and rental costs cannot be overlooked. Competition across the sector also remains intense and costs for businesses generally are now elevated. Group net debt of £5.64 billion compares to a stock market value of £6.4 billion, while current full-year adjusted profit guidance of between £670 million and £700 million compares to £690 million last year. 

On the upside, its market share performance continues to outpace rivals according to management as it focuses hard on its food first value offering, while the rollout of Nectar prices should help increase customer loyalty. Group net debt is being lowered, while a price-to-net asset value of less than one compares to over five at Amazon.com Inc (NASDAQ:AMZN), B&M and Greggs (LSE:GRG), suggesting the shares are not expensive. 

For now, and despite ongoing risks, a defensive food offering and forecast dividend yield of over 4.5% is likely to leave income investors sitting tight.

Positives: 

  • A cost saving programme ongoing
  • Attractive dividend payment (not guaranteed)

Negatives:

  • Elevated costs
  • Intense sector competition

The average rating of stock market analysts:

Hold

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