We’ll learn more about the supermarket sector on Wednesday, when J Sainsbury (LSE: SBRY) is due to deliver a first-half trading update. Despite picking up to 288p in April this year, Sainsbury shares have turned down again and currently trade at around 227p — and that might not be the last time a supermarket recovery has been wrongly called.
Forecasts suggest at least two more years of falling earnings for March 2016 and 2017, with a return to growth appearing unlikely before 2018 at the earliest. And Sainsbury’s first-quarter update in June didn’t do anything to contradict that, with like-for-like sales in the quarter down a further 2.1% (excluding fuel – with fuel included, the drop reached 3.7%). At the time, chief executive Mike Coupe said that “Trading conditions are still being impacted by strong levels of food deflation and a highly competitive pricing backdrop“, which didn’t really come as a surprise.
But is all the pessimism already built into the share price? We’re looking at forward P/E ratios of around 10.5, which is a good bit less than the FTSE’s long-term average of about 14, with twice-covered dividend yields of 4.5% and better. The risk, of course, is that those dividends won’t stand up, but I think we could see the shares picking up again.
Sweet thing
We’ll also have an update coming from Tate & Lyle (LSE: TATE), and a recovery could well be in sight. The specialist in sweeteners has had a few tough years of falling earnings, but its restructuring is expected to provide a return to EPS growth in the year ending March 2017. The firm has maintained its dividend, which looks set to yield more then 5% (although that won’t be well covered), and a P/E of 16 suggests the markets are optimistic — and the share price has been picking up in the past month, to 580p.
The company’s last update in July supported that sentiment, talking of “an encouraging start to the year” and telling us that its “trading performance in the first quarter was in line with our expectations and guidance for the full year remains unchanged“.
Growth story
Lastly, we have an impressive growth story in the shape of Wolseley (LSE: WOS), whose share price has climbed by 26% in the past 12 months, to 4,200p, and by 140% over five years.
Wolseley will bring us full-year results on Tuesday, with forecasts suggesting a continuation of the firm’s recent rising earnings — if the 16% growth comes to pass, we’ll have seen EPS trebling in five years. Dividends are rising nicely, though the share price climb has left the predicted yield at a modest 2.2%. But there’s a P/E of 16 on the cards for 2016, which is modest for a growth firm.
And Wolseley, with its business in construction equipment, heating and plumbing, is the kind of picks and shovels firm that should do well from the economic recovery — especially in the USA, which is now its biggest market.