Proposed Directors of Tirupati Graphite explain why they have requisitioned an GM. Watch the video here.
Sainsbury’s share price continues to trade towards multi-year lows, due to the bearish fundamentals surrounding the UK supermarket chain.
Sainsbury share price analysis shows that more downside towards the 105p level remains possible while the price trades under the 225p resistance area.
Sainsbury’s medium-term price trend:
Sainsbury’s share price is trading close to the weakest levels of the year so far, as investors continue to shun the stock and traders sell any upside rallies.
Since the start of 2020 Sainsbury’s share price has lost more than 15 per cent and it is trading basically flat on a year-to-date basis.
SBRY share price technical analysis shows that a bearish head-and-shoulders pattern is warning of further losses towards the 105p level.
The daily time frame shows that a bearish head-and-shoulders pattern has been activated, with around 120p downside projection.
Failure to move the price above the neckline of the pattern, around the 235p level, could see the stock falling towards the pattern’s bearish target, around the 105p level, over the medium-term.
Sainsbury’s short-term price trend:
SBRY share price technical analysis shows that Sainsbury’s stock has a short-term bearish bias while the price trades below the 210p resistance level.
According to the size of the bearish pattern the stock could fall towards the 163p level if the pattern reaches its full downside potential.
Traders should note that the bearish pattern has been activated now that the price trades below the 200p level.
Bulls somehow need to move the price above the 237p resistance level to invalidate the pattern.
Sainsbury’s technical summary:
SBRY analysis highlights that the share price of the British supermarket giant could fall towards the 163p level, and possibly even the 105p support level.
Liberum said McColl's "deserves credit" for the stabilisation achieved in 2019 and its ability to deliver on promises set out at the the time of the firm's interim results.
"The strategy is now more focused, and while it is early days, we are encouraged by some green shoots in H2," said the broker.
The analysts also said they weren't concerned by McColl's dividend suspension and stated the move was "sensible", while work continues to restore balance sheet health.
"A key risk to watch", the analysts said: "The shares have been harshly punished and we think the risks are now more than factored into the low valuation, which may re-ignite talk around McColl's as an M&A target."
Dividend aside, Liberum said it saw "several signs of encouragement" in the group's preliminary results, with recent trading moving into positive like-for-like territory despite the severe weather in the past couple of weeks.
Its adjusted full-year 2020 underlying earnings estimates increased marginally, based on a slightly more optimistic gross margin improvement. It also noted that McColl's net debt profile should fall quicker than previously, reflecting the dividend suspension and the group's imminent sale of its head office for £7.3m.
Newsagents closed 59 over the year:
2018 - 303
2019 - 244
6 Forecourt stores sold
Total number of stores closed 120 - 55 poorly performing smaller stores also closed.
Current estate 1,443, intentions to reduce to c.1,100 - intentions to close around a further 300 stores. Maybe 180 newsagents and 120 smaller poorly performing stores.
I am not worried by the reduction in sales as this comes from the reduction in the number of stores in McColl's estate which was already forecast and which will continue over the next 3 years.
Sales Mix 2018:
38% - Tobacco
34% - Grocery & Alcohol
28% - News & Chocolates etc
2019:
39% - Tobacco
34% - Grocery & Alcohol
27% - News & Chocolates etc.
Dividend - As well as no Final Dividend being paid, the report reads to me that no Dividend will be paid for this financial year 2020 as well.
After phase 2, a total of 30 stores, the report reads to me that at some point going forward more stores will become Morrisons Daily.
Once store optimisation is complete forecasting a 15% increase in average weekly sales per store with a 52% increase in average annual profit per store.
The retailer is now looking to revamp its store estate, in what it calls a “customer-focused, medium-term strategic change programme addressing the opportunity of segmenting our store estate to better meet the needs of the communities we serve on a ‘neighbourhood by neighbourhood’ basis”.
The key initiatives of the change programme are said to be:
A revitalised customer offer, informed by better insight, addressing store segmentation, range development, space allocation and value positioning;
A fundamental reset of the operating model to make stores easier to operate and easier to shop, harnessing new technology, and offsetting continued inflationary pressures;
Enhancing the quality of the estate through accelerated store optimisation.
Proposed test stores will feature “optimised range, display and pricing and innovative food-to-go and last-mile delivery trials”.
400-500 stores still required refurbishment.
“Over the medium term, as a result of further divestments and net of future acquisitions, we anticipate an optimised estate of around 1,100 larger, more convenience-focused stores,” the company said.
New interview with Mike available on the Serabi homepage - CEO MH said "Cash from the gold from the tailings treatment goes straight to the bottom line as profit because there is no real cost associated with them."
The latest Kantar figures show that Aldi/Lidl have increased their market share by 0.3% over the past month to give them a combined market share of 13.9%.
Aldi/Lidl are opening up around 40 supermarkets per month.
It seems to me just another 6 to 9 months and Aldi/Lidl will have around the same market share as Asda and with in a little over a year will over take Sainsburys.
Average size of 41 stores closed 1,000sq ft with weekly sales of £10,000.
Average size of 3 new stores opened 1,700sq ft with weekly sales of £25,000.
Morrison Daily trial stores all opened in the North West.
The last paragrapgh of the article:
So overall, if you’re looking for an undervalued retailer to add to your portfolio, I highly recommend taking a closer look at McColl’s. As the company’s growth initiatives begin to yield results over the next few years, the shares could rise substantially from current levels.
It’s difficult for me to find any reason to buy the J Sainsbury share price right now. Even though shares in the retailer are currently trading at one of the lowest valuations in the past decade, and the lowest valuation of the sector, the group’s bleak growth outlook is a major concern.
Indeed, City analysts expect the company’s earnings per share will fall 15% this year. On the other hand, analysts have pencilled in earnings growth of 5% and 25% for Sainsbury’s largest peers, Tesco and Morrisons, respectively.
Falling sales
It looks as if the company is closing in on analysts’ dismal expectations for the year. Sainsbury’s like-for-like sales for 16 weeks to the end of June were down 1.6%, excluding fuel, which tells me the business is struggling to compete in the current retail environment. And now that the group’s merger with Asda has been scrapped, it’s difficult to see what the future holds for this retailer.
Management needs to pull something out of the hat to return the business to growth and draw customers back into Sainsbury’s store. Until there’s some progress on this front, I’m not tempted by the firm’s low valuation and a 1.5% dividend yield.
A better buy:
In my opinion, a better retail sector buy is the convenience store operator McColl’s). Even though it has its own problems, McColl’s has a plan. For the past two years, the group’s operations have been disrupted by supply chain issues, which caused profits to drop 50% in 2018.
While analysts expect a further decline of 15% in earnings per share for 2019, as the business continues to invest in growth, costs are coming down and sales are going up. McColl’s interim numbers for the 26-week period ending 26 May show a 1% increase in like-for-like sales and a decline in adjusted administrative expenses as a percentage of revenue of 0.3% to 25.2%. Adjusted EBITDA and profit before tax came in at £13m and £0.2m, respectively.
As part of its plan to rekindle growth, McColl’s management is working closely with Morrisons to offer customers a broader range of products at a lower price. The group is also trialling a “Morrisons Daily” format at 10 stores.
A more significant range and lower prices aren’t management’s only growth initiatives. The business is also rapidly reshaping its store estate. Some 41 underperforming stores and newsagents and smaller convenience stores were divested during the first half of this year while three new convenience stores were opened.
Growth returns:
All of these efforts should, the City believes, help the company return to growth in 2020. With this being the case, I think the stock is a steal today trading at just nine times forward earnings. This makes McColls the cheapest the stock in the UK food and drug retailing industry. On top of this appealing valuation, McColl’s supports a dividend yield of 5.8%, so you’ll be paid to wait for earnings to recover.
rest of the article....
The point, in my view, that the CMA seemed to have missed so far, is that shoppers will choose with their feet whether this is a good deal based on what they pay at the checkout. If prices go up, product assortment is limited or store operations are poor, they will simply shop somewhere else. It is in no-one’s interests – shoppers or suppliers alike – to make this deal anti-competitive and it never was. We talk to 1000 shoppers a month through our savvy shopper panel and we know that after location, value is the critical determinator of choice when deciding where to do your food shop.
The CMA seem to be focused on the enlarged group’s buying scale, but we need to remember that Sainsbury’s and Asda are the second and third largest players respectively, and together they would have share similar to Tesco’s – but in buying terms given Tesco’s relationship with Carrefour, still gives them significant power.
A combined business would benefit immediately from better buying conditions, as it has already stated but it would apply the best buying terms of either company for each supplier. In addition it would have considerable scope to negotiate lower prices as a result of its enlarged scale. This, combined with the ongoing sourcing support from Walmart may be enough to allow Asda to realign its prices to regain share from discounters. The customer will be the winner and suppliers will benefit from increased volumes and a simpler way of working. Importantly, smaller suppliers will all benefit from moving to the better payments terms of 14 days offered by Asda.
Despite independent reports now presented to the CMA by Alix Partners and enhanced commitments made by both parties to the merger, it remains to be seen whether the CMA grasps the reality of the nature of shopper behaviour in the UK, but the unintended consequences of the deal being called off will likely have a much bigger impact on the UK shopper than it going ahead.
Catherine Shuttleworth, owner of Savvy shares her thoughts and analysis on the Asda-Sainsbury’s merger:
There has been significant discussion about the Asda-Sainsbury’s merger ever since the news was broken that the two retailers were planning to join forces in a potential consolidation move within the food retail market that has been much discussed and expected.
The CMA enquiry into the proposed merger has produced a number of surprises – not least to the retailers themselves. As we head to the final part of the enquiry it is still difficult to call out how the situation will end.
The competition issue for Sainsbury’s and Asda has never really been disputed at a national level – after all the combined group would be similar in size to market leader Tesco – the competition issues have always been at a local level with geographical strengths in various parts of the UK so there was always going to be overlap. Last week a statement was made that the combined new business would look at disposing of 150 shops – it is difficult to imagine any position where disposals would not be unavoidable.
The issue of competition locally however has shone a light on the changed dynamic of the UK grocery market since the last CMA review when Morrison’s merged with Safeway. No longer do shoppers see a big 4, no longer do they hold loyalty with just one retailer and the days of one big shop are far behind us. Even since this merger proposal was put forwards M&S have announced their deal with Ocado, Aldi have opened their first convenience store and Waitrose has sold a package of stores to their competitors (Co-op & Aldi.) There has never been a more competitive period in food retail and there is absolutely no signal that this will stop. Meanwhile margins remain under pressure, the impact of Brexit (however it concludes) is having a huge impact on both consumer confidence and everyone in the food supply chain and the way we shop for food (using ‘food for tonight’ providers such as Uber eats, Deliveroo and Just Eat) means that the traditional food retailers are having their businesses attacked from every angle. When it comes to competition there has never been more and the beneficiary of this is the shopper.
Last week significant additional commitments to transparency around audited savings on food and fuel were made and these, alongside the store disposal commitment, in my opinion – now shows that the merger is in the best interests of the shopper.
The point, in my view, that the CMA seemed to have missed so far, is that shoppers will choose with their feet whether this is a good deal based on what they pay at the checkout. If prices go up, product assortment is limited or store operations are poor, they will simply shop somewhere else. It is in no-one’s interests – shoppers or suppliers alike – to make this deal anti-competitive and it never was. We talk to 1000 shoppers a month through our savvy shopper panel and we know that after location, value i
Sainsbury's will move to pay small suppliers with turnovers of less than £250,000 within 14 days.
Sainsbury’s and Asda have announced plans to cap fuel price profits as part of their proposed merger.
Sainsbury’s would set a gross profit cap of 3.5 per cent on its fuel prices for the first five years following the merger.
“Sainsbury’s and Asda have also responded to the Notice of Proposed Remedies by outlining supermarket and petrol forecourt divestments across both brands that would satisfy reasonable concerns regarding any substantial lessening of competition as a result of the merger by applying a conservative yet reasonable threshold.”
According to the most recent data, Sainsbury’s was the UK’s fifth-biggest fuel retailer in 2018 with a market share of 10.2 per cent. Asda, with a market share of 7.6 per cent, was the seventh-biggest. Combining their portions of the market would create the UK’s largest fuel retailer – ahead of Tesco’s 16 per cent share last year.
Morrison got burnt before with their own convenience stores therefore I think they are likely to wait and see how it goes with McColl's for a couple of years before maybe going for a take over.
Peel Hunt believe the move marks a "highly significant and highly positive development", noting that while the McColl’s fascia is popular and evolving, the switch to the Morrisons Daily fascia could "really help densities".
"This could just be the fillip McColl's shares need after a quarter or two in the doldrums: we are confident the trial will work and that the fascia will be rolled out to more stores," its analysts said.
Peel Hunt stated the rebrand might also gave McColl's a "real chance" to see its like-for-like revenues make progress again.
Although Peel Hunt noted results of the trials wouldn't be known for a while, the broker still felt the potential of the Morrisons Daily fascia could be significant and was capable of really moving the dial over the medium-term.
"This is a good opportunity to get behind the shares again, and one that we hadn’t seen emerging in the short term," concluded analysts Jonathan Pritchard and John Stevenson.
The potential significance of McColl's Morrisons Daily rebrand is huge:
The potential significance is huge. Could McColl’s convert all 1,600 stores to the Morrisons fascia? Probably not any time soon, but as it’s learned with its acquisition of Co-op stores, the McColl’s brand isn’t strong.
Equally significant is that McColl’s will be selling Morrisons’ own brand in the trial stores rather than the Safeway range Morrisons developed for its wholesale customers, which is in the majority of McColl’s stores.
Opinion: McColl’s turnaround can finally begin.
If this proves more of a hit than Safeway, it should look to roll it out across the estate. The Morrisons name has greater resonance with shoppers than Safeway and we seem to be getting used to retailers selling their own label in other stores.
The Co-op hasn’t developed a different sub-brand for Nisa and Costcutter, it’s seeing the value of scaling up the Co-op brand. Even M&S is now considering selling Ocado products in its stores. So surely selling Morrisons own brand in 1,600 McColl’s stores could do both the power of good.
Cutthroat competition and Brexit risks are likely to deter most buyout firms from pursuing Asda unless they can get it for an attractive price, according to advisers who have pitched the deal.
While buyout firms sit on about $1.2 trillion of undeployed capital and are keen to do deals, financiers have been concerned about providing loans to U.K. businesses and it has become more difficult to get sterling-denominated debt to finance acquisitions of British assets, people familiar with the matter said last month.
Buyout firms have previously run the ruler over U.K. supermarket chains. In 2007, Sainsbury fended off approaches led by CVC Capital Partners and the Qatar Investment Authority. Sky News reported that they teamed up on another proposal in 2016 that was abandoned after the grocer moved to buy Home Retail Group Plc.
CVC is not currently looking at the grocer as a potential takeover target, people familiar with the firm’s thinking said. A representative for CVC declined to comment.
Asda would be an affordable to a private equity firm, if large, bite for a financial sponsor. In the absence of another bidder, the valuation might fall to, say, 6 billion pounds. Then assume that half the deal could be funded in debt. If Walmart kept a minority stake, the equity the buyout firm would need to put up could be as little as 1.5 billion pounds.
This could prove tempting – if a buyout firm could satisfy itself that getting out of the investment would be as easy as getting in. With antitrust regulators likely to block a sale to another grocer, the exit would have to be through an initial public offering.
To generate an internal rate of return of roughly 15 percent over five years would require the buyout firm to grow the equity value to 6 billion pounds. Assume debt stayed steady as spare cash was reinvested in the business (it needs it). Asda would then have to attain an enterprise value of 9 billion pounds to deliver the desired gains.
Asda's margins are already wide. So the strategy would have to focus on getting sales up. CEO Roger Burnley has delivered the beginnings of a turnaround, growing sales by 2.6 percent in 2017. That would need to be sustained over the lifetime of the investment. The company would need to poach customers from big grocers Sainsbury and Tesco Plc, most likely by undercutting them on price, and from discounters Aldi and Lidl by convincing them to pay a little more for the convenience of a full range.
Sure, it would still be tough to get an Asda deal past any private equity firm’s investment committee. But a buyout wouldn’t be Walmart’s only option. It could combine Asda with another retailer, such as B&M European Value Retail SA – both serve the same price-conscious shoppers.
So at least Walmart has options. That isn’t the case with Sainsbury. CEO Mike Coupe could try to strike a deal with Wm Morrison Supermarkets Plc instead of Asda – but that could face similar regulatory constraints. Or he could stick with a standalone strategy. But that won't generate anything like the value promised by the Asda tie-up. What’s more, the company’s performance has recently deteriorated. A private equity bid for the supermarket might be possible, but it would be less than straightforward.
With the Asda deal falling apart at the checkout, Sainsbury will be left with the advice of one of its own marketing slogans: love your left overs.
Personal note - If Sainsburys tried to join with Morrison I do not think they would have the same difficulty as with the Asda deal as any tie up with Morrison would give the combined group around 1.5% less market share then Tesco currently have.
So far Coupe has had more failures than successes as he failed with setting up Netto and failed again when trying to take over Nisa which went to the Coop.
I understand there is a very high probability that the dividend will be cut to between 7.2p and 8p which will put McColl's on a yield of around 12%.
Sainsbury’s (SBRY) is challenging the Competition and Markets Authority (CMA) probe into its merger with Asda, showing just how tricky this mega deal will be, says AJ Bell.
‘Investors may begin to question Sainsbury’s management more strongly on the merits of pressing ahead with the tie-up, given the demands it places on their time and resources.’
'Sainsbury’s may be better off staying smaller but getting smarter in the way it responds to the needs of shoppers’.
Interesting to see what the analysts are forecasting for McColl's dividend going forward.
For the FY18 declining from 10.3p to 7.2p, a decline of around 30% and putting McColl's on a current yield of 11%.
For the FY19 a dividend of 7.5p.
I understand this drop in the share price today is due to Sainsbury's will lose the goodwill of the CMA by going for a judicial review to get an extra 11 days to put their case forward, even though Sainsbury's and Asda have already had 6 month to get their case ready.
Sainsbury's/Asda asked for phase 1 to be waved through and if they had not done so would have given them the time they're now asking for.