J Sainsbury plc (SBRY.L) | Investment Case

1. Company Snapshot

1.a. Company Description

J Sainsbury plc, together with its subsidiaries, engages in the food, general merchandise and clothing retailing, and financial services activities in the United Kingdom and the Republic of Ireland.It operates through three segments: Retail Food, Retail General Merchandise and Clothing, and Financial Services.The company operates various store formats, including convenience stores and supermarkets.

It is also involved in the online grocery and general merchandise operations.As of March 5, 2022, the company operated 598 supermarkets, 809 convenience stores, 728 Argos stores, and 335 collection points, as well as 3 Habitat stores.In addition, it offers financial services, such as credit cards, scorecards, and personal loans; and home, car, pet, travel, and life insurance products.

The company was founded in 1869 and is headquartered in London, the United Kingdom.

Show Full description

1.b. Last Insights on SBRY

J Sainsbury's recent performance has been positively driven by a strong first half, with underlying operating profit reaching £504 million for the 28 weeks to September 13. The company's clothing sales have also shown significant growth, with a 3.3% increase in general merchandise and clothing. Additionally, the consensus analyst price target for J Sainsbury stock has edged up from £3.31 to £3.41, indicating a slight boost in confidence about future value. The company is also set to pay a dividend, with an ex-dividend date approaching.

1.c. Company Highlights

Last Price	312
Change Percentage	0.32%
Open	311.4
Previous Close	311
Market Cap ( Millions)	7004
Volume	4012478
Year High	360.4
Year Low	223.4
M A 50	333.58
M A 200	292.45

FCF Yield	29.64%
Dividend Yield	7.95%
ROE	3.65%
Debt / Equity	99.35%
Net Debt / EBIDTA	373.87%
Price To Book	0.75
Price Earnings Ratio	20.54
Price To FCF	3.37
Price To sales	0.21
EV / EBITDA	8.19

2. Sainsbury's Delivers Strong H1 Performance

Sainsbury's reported a strong financial performance in the first half, with total retail sales growth of 4.8% excluding fuel, and 2.7% including fuel. The company's retail underlying operating profit was broadly in line with last year's at GBP 504 million, which was ahead of expectations. Underlying EPS increased by 12% to 0.102, beating analyst estimates of 0.1007. The company's focus on value, quality, and innovation has driven growth, with 18% growth in Taste the Difference fresh sales and a significant increase in loyal primary customers.

Publication Date: Nov -10

                                    📋 Highlights
                                    Grocery Volume Growth::
                                                Achieved 5th consecutive year of grocery volume growth ahead of market, with 65% of customers combining Aldi Price Match and Taste the Difference products in one basket.
Profit Performance::
                                                Retail underlying operating profit of GBP 504 million, exceeding expectations despite GBP 140 million NIC and GBP 53 million EPR cost pressures.
Product Innovation::
                                                Launched 600 new products summer 2024, driving 18% growth in Taste the Difference fresh sales and 40% premium dining sales uplift post-launch.
Cost Savings Progress::
                                                Delivered GBP 349 million savings in 2023/24 under GBP 1 billion 3-year target, with GBP 350 million returned to shareholders via dividends and buybacks.
Customer Loyalty::
                                                Added 1 million loyal primary customers, supported by Nectar loyalty program driving 40% increase in premium dining sales since launch.

                                

Revenue Growth Drivers

The company's revenue growth was driven by a 5.2% increase in Sainsbury's sales, with consistent volume growth through the quarter despite higher inflation. Argos sales grew by 2.3%, helped by good summer weather and offsetting a Q2 comparative, which was boosted by significant strategic stock clearance activity last year. The company's focus on value and quality has driven growth, with Aldi Price Match and Nectar Prices improving value perceptions among Sainsbury's customers.

Valuation Metrics

Using the current P/E Ratio of 22.99 and EV/EBITDA of 8.74, it appears that the market has priced in a certain level of growth and profitability for Sainsbury's. Analysts estimate next year's revenue growth at 1.4%, which may indicate a slight slowdown in growth momentum. However, the company's focus on cost savings and its 'Save and invest to win' program, which aims to deliver GBP 1 billion of savings over 3 years, may help to mitigate this slowdown.

Outlook and Conclusion

Sainsbury's is well-positioned for the second half, with a strong plan for value, innovation, and quality, and a focus on service both in-store and online. The company's expectations for retail underlying operating profit of more than GBP 1 billion in the full year and retail free cash flow of at least GBP 500 million appear achievable, given the strong H1 performance. With a dividend yield of 3.89% and a free cash flow yield of 26.39%, Sainsbury's appears to offer an attractive return to shareholders.

3. NewsRoom

Sainsbury’s shares fall as Qatar ends near-20 year spell as biggest investor

Dec -03

Source:

Qatar dumps £270m stake in Sainsbury’s

Dec -03

Source:

UK's cheapest supermarket in November revealed

Dec -03

Source:

UK firm Borough Broth attracts investment from Piper

Dec -01

Source:

Sainsbury’s to ‘nudge’ delivery drivers to wear seatbelts

Nov -26

Source:

How Recent Developments Are Shaping the Story Behind Sainsbury’s Valuation and Outlook

Nov -26

Source:

Iceland boss says competition rules ‘rigged’ in Aldi and Lidl’s favour

Nov -22

Source:

Ocado's robotic future under threat as Kroger looks to Instacart

Nov -20

Source:

4. Business Breakdown

4.a. Revenues by Country

4.b. Revenues by Segment

5. Expected revenues mid-term growth (2.49%)

6. Segments

Retail

Expected Growth: 2.5%

Sainsbury's Retail segment growth of 2.5% is driven by strategic investments in digital transformation, enhancing customer experience, and expanding online grocery services. Additionally, the company's focus on improving operational efficiency, reducing costs, and investing in private label products have contributed to this growth.

Financial Services

Expected Growth: 1.8%

Sainsbury's Financial Services growth of 1.8% is driven by increasing demand for insurance products, expansion of credit card offerings, and strategic partnerships. Additionally, the integration of Argos Financial Services has enhanced the company's financial capabilities, contributing to growth. Furthermore, Sainsbury's strong brand reputation and large customer base have enabled cross-selling opportunities, boosting financial services revenue.

7. Detailed Products

Supermarkets

Sainsbury's operates a chain of supermarkets across the UK, offering a wide range of food, groceries, and general merchandise.

Convenience Stores

Sainsbury's operates a network of convenience stores, offering a range of food, drinks, and essentials for customers on-the-go.

Pharmacy and Health Services

Sainsbury's offers pharmacy services, including prescription dispensing, health checks, and advice on healthy living.

Banking and Financial Services

Sainsbury's offers a range of financial products, including credit cards, loans, and insurance services.

Energy Services

Sainsbury's offers energy services, including gas and electricity supply, to households across the UK.

Home Shopping

Sainsbury's offers a home shopping service, allowing customers to shop online and have their groceries delivered or collected in-store.

Tu Clothing

Sainsbury's operates a clothing brand, Tu, offering a range of fashion items for men, women, and children.

8. J Sainsbury plc's Porter Forces

Forces Ranking

Threat Of Substitutes

Sainsbury's operates in a highly competitive market, with many substitutes available to customers. However, the company's strong brand reputation and loyalty schemes help to mitigate this threat.

Bargaining Power Of Customers

Sainsbury's customers have a high bargaining power due to the availability of substitutes and the ease of switching to competitors. The company must focus on providing excellent customer service and competitive pricing to retain customers.

Bargaining Power Of Suppliers

Sainsbury's has a strong bargaining power over its suppliers due to its large scale of operations and long-term contracts. This enables the company to negotiate better prices and terms with its suppliers.

Threat Of New Entrants

The threat of new entrants is low in the UK supermarket industry due to the high barriers to entry, including the need for significant capital investment and established supply chains. Sainsbury's strong brand reputation and economies of scale also make it difficult for new entrants to compete.

Intensity Of Rivalry

The UK supermarket industry is highly competitive, with several major players competing for market share. Sainsbury's must focus on differentiating itself through its products, services, and customer experience to maintain its market position.

9. SWOT Analysis

10. Capital Structure

10.a. Balance Sheet

10.b. Weighted Average Cost of capital

	Value
Debt Weight	19.93%
Debt Cost	7.22%
Equity Weight	80.07%
Equity Cost	7.22%
WACC	7.22%
Leverage	24.90%

11. Quality Control: J Sainsbury plc passed 3 out of 9 key points

Strong Liquidity

Low Debt

Strong Interest Coverage

Healthy Cash Flow

Operating Inefficiency

Strong Return On Equity

Consistent Revenue Growth

Consistent Operating Cash Flow Growth

Margin Improvement

12.a Historical Valuation

12.b Price/Earnings Ratio

12.c Margin Valuation

12.d Peers Valuation

Peers Group Analysis

Sainsbury

A-Score: 6.8/10

Value: 7.4

Growth: 7.6

Quality: 2.5

Yield: 7.5

Momentum: 7.0

Volatility: 9.0

1-Year Total Return ->

Kesko

A-Score: 5.7/10

Value: 5.6

Growth: 4.2

Quality: 3.6

Yield: 7.5

Momentum: 4.0

Volatility: 9.0

1-Year Total Return ->

Axfood

A-Score: 5.6/10

Value: 4.2

Growth: 5.8

Quality: 4.1

Yield: 5.6

Momentum: 5.0

Volatility: 9.0

1-Year Total Return ->

Colruyt

A-Score: 5.2/10

Value: 7.7

Growth: 4.6

Quality: 4.3

Yield: 6.9

Momentum: 1.0

Volatility: 7.0

1-Year Total Return ->

Carrefour

A-Score: 5.2/10

Value: 7.4

Growth: 4.6

Quality: 1.6

Yield: 7.5

Momentum: 2.5

Volatility: 7.7

1-Year Total Return ->

Greggs

A-Score: 5.0/10

Value: 7.1

Growth: 6.6

Quality: 5.7

Yield: 6.2

Momentum: 0.5

Volatility: 4.0

1-Year Total Return ->

Peers Metrics

12.e Scoring ^Insights

12.f DCF ^BETA

Parameters

Short Term Growth

-9.04%

Short term Time

10.0

Long-Term Growth

2.00%

WACC

7.22%

J Sainsbury plc - GB00B019KW72

1. Company Snapshot

1.a. Company Description

1.b. Last Insights on SBRY

1.c. Company Highlights

Higher Yield

Lower Quality

Average Growth

Medium Volatility

Earnings Miss

Weak Momentum

Fairly Valued

Revenues Miss

Earnings Beats

Lower Growth

Revenues Beats

Stable Momentum

Higher Growth

2. Sainsbury's Delivers Strong H1 Performance

Revenue Growth Drivers

Valuation Metrics

Outlook and Conclusion

3. NewsRoom

4. Business Breakdown

4.a. Revenues by Country

4.b. Revenues by Segment

5. Expected revenues mid-term growth (2.49%)

6. Segments

Retail

Expected Growth: 2.5%

Financial Services

Expected Growth: 1.8%

7. Detailed Products

Supermarkets

Convenience Stores

Pharmacy and Health Services

Banking and Financial Services

Energy Services

Home Shopping

Tu Clothing

8. J Sainsbury plc's Porter Forces

Forces Ranking

Threat Of Substitutes

Bargaining Power Of Customers

Bargaining Power Of Suppliers

Threat Of New Entrants

Intensity Of Rivalry

9. SWOT Analysis

Strength

Weaknesses

Opportunities

Threats

10. Capital Structure

10.a. Balance Sheet

10.b. Weighted Average Cost of capital

11. Quality Control: J Sainsbury plc passed 3 out of 9 key points

12.a Historical Valuation

12.b Price/Earnings Ratio

12.c Margin Valuation

12.d Peers Valuation

Peers Group Analysis

Peers Metrics

12.e Scoring Insights

12.f DCF BETA

Parameters

Short Term Growth

Short term Time

Long-Term Growth

WACC

Target Price

3.12$

Current Price

3.12$

Potential

-0.00%

Expected Cash-Flows

12.e Scoring ^Insights

12.f DCF ^BETA