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On Wednesday 10 June, J Sainsbury is due to post its first-quarter trading update to the market. Institutional opinion for the firm, along with the majority of the food retail sector, is poor. At the moment, six companies have it as a buy, nine as a hold, and ten as a sell. The average 12-month price target is 252p just above the current market price of 249p.
The logistics for Sainsbury’s is extensive, with retail outlets dotted all over the UK but more heavily weighted towards the south. Because of the transportation costs associated with keeping these outlets supplied, the weakness in the oil price – and subsequently at the petrol forecourts – has benefited the firm. As helpful as this has been, the recent upturn in prices has seen some of these benefits diminished. At the same time the squeeze on margins has been maintained by the highly competitive price war that is still going on between companies in this sector.
The most recent survey from Kantar has seen Sainsbury’s manage to hang onto its 16.5% market share even though sales are calculated to have fallen by 0.3%. The race for the second largest food retailer has heated up, with ASDA calculated to have fallen by 2.4% seeing its market share drop from 17.1% to 16.6%. Still head and shoulders above everyone else, Tesco has seen its market share drop from 29% to 28.6%
Although Sainsbury’s is above its December lows, the trajectory has been steadily heading lower. The noises coming out of companies in this sector give little encouragement that this is a trend that is about to suddenly be reverted. As such, the 225p level looks very much like the short-term target where it will be interesting to see if any support materialises around this region.