Sainsbury's: a 'must-have' share

By Associate Editor David Stevenson Jan 11, 2012

David Stevenson

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What's new?

British consumers may have been under the cosh in recent months, but it hasn't done Sainsbury's (LSE: SBRY) any harm. Despite the economic backdrop, Britain's third-largest supermarket chain has just enjoyed "a record-breaking Christmas to complete a strong quarter", says boss Justin King, "there were 26 million customer transactions in the Christmas week, 1.5 million more than last year".

What are the details?

On a like-for-like basis (ie excluding new store space), sales in the 14 weeks to 7 January climbed by 2.1% (excluding fuel) compared with last year. That was better than the City expected. Total sales for the period grew by 7% (4.5% excluding fuel). Over the last two years, like-for-like sales growth was 5.7% excluding fuel.

Unlike other UK retailers, Sainsbury's general merchandise and clothing sales continued to grow faster than food. Further, turnover at the company's 'convenience' shops grew by almost 25%, driven by new space and strong like-for-like sales growth, says King, while online deliveries increased by nearly 20%.

What's the outlook?

"Consistent with trends over the past year, we expect customers to spend cautiously in 2012 particularly as they tighten their belts post-Christmas", says King. But the group is hoping that key events later in the year, such as the Queen's Diamond Jubilee and the Olympics, will provide growth opportunities.

Saisnbury's share price chart

Source: Bloomberg

The analysts

Of the 33 analysts surveyed by Bloomberg, just 21% say "buy", 52% "hold" and 9% "sell". The average price target is 320p, only 5% above the current share price.

Our view

The UK's consumer spending outlook is grim. Sainsbury's is showing it can find ways to deliver the goods even when times are hard, yet the shares have dropped more than 20% in the last year.

On a forecast p/e of ten for the year starting in April, and with a prospective yield of 5.2%, the shares are now 'pricing in' any likely damage from tough trading conditions. Further, it's often a good sign when analysts are lukewarm. This stock is a 'buy'.

You can find out more about Sainsbury's here.

Comments (2)

Published in Share tips | More articles by David Stevenson

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  • 1. David Lees

    (12 January 2012, 01:02PM)  Complain about this comment

    A record Christmas and shares plummet, including a 5.5% fall the day after this tip is published.

    Don't you hate it when that happens?

    Does this latest fall make Sainsbury an even better buy or do we need a barge pole to go anywhere near it now?

  • 2. Conrad

    (18 January 2012, 02:55AM)  Complain about this comment

    One rule of thumb I find saves me money is to avoid shares that were more expensive a decade ago.

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