The supermarkets are having it tough right now, with post-recession belt-tightening and a price assault from Aldi and Lidl taking their toll.
Tesco is fighting hard to repair its reputation as the UK’s number one groceries seller, while Morrison is struggling to find its place. But what about J Sainsbury (LSE: SBRY)?
I think Sainsbury’s is in a very strong position. Here are three reasons why:
1. Identity
Sainsbury’s knows what it is and where it’s positioned in the market. It aims more towards the quality end of the market, but is accessible to most people, offering something a bit nicer than usual to ordinary folk.
And that strategy has been working well, with earnings per share (EPS) growing every year for the past five years. We do have a couple of years of stagnating earnings forecast, but that’s the same across the whole sector.
2. Recognition
Last year, Sainsbury’s was named Supermarket of the Year at the Retail Industry Awards for the sixth time in eight years, Online Retailer of the Year at the Grocer Gold awards for the second consecutive year, and Convenience Retailer of the Year for the fourth consecutive year at the Retail Industry Awards.
At the QBE National Business Awards the company also picked up the FTSE100 Business of the Year 2013 title, and was granted a Gold Accreditation by Investors In People to become the only supermarket so honoured.
Sainsbury’s must be doing something right.
3. Fundamentals
While we do have a fall in EPS of 7% expected for the year ending March 2015, the market looks to have over-reacted — especially as the City is expecting 2016 to be flat. At 320p, Sainsbury’s shares are down 17% over the past 12 months, and that puts them on a forward P/E ratio for the next two years of under 11. Compare that to the FTSE 100 long-term average of 14, and that immediately commands attention.
And when you throw in dividends exceeding 5% with cover being maintained at around 1.8 times, Sainsbury’s shares just have to be too cheap.