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Sainsbury’s shares: can they regain momentum after full-year results?

J Sainsbury published its 2020/21 preliminary full-year trading results today, revealing pre-tax profits plunged 39% year-on-year to £356 million. How will Sainsbury’s shares react to the substantial losses incurred by Covid-19?

  • Sainsbury's grocery sales up 7.8% year-on-year (YoY)
  • Online grocery sales double YoY
  • Company incurred £485 million in additional costs due to Covid-19
  • Looking to trade Sainsbury’s shares? Open an account today

Sainsbury (J) (SBRY.L), the UK’s second-biggest supermarket chain, released its preliminary full-year (FY) results for 2020/21 today. Sainsbury’s confirmed that pre-tax profits plunged from £586 million in 2019/20 to £356 million in 2020/21, with the brand facing additional operating costs from the Covid-19 pandemic and its decision to forgo business rates relief.

Will Sainsbury’s shares rise given that encouraging Q3 trading figures continued into Q4?

According to the official publication detailing Sainsbury’s preliminary final-year results for 2020/21, grocery sales remained buoyant in quarter four (Q4) as in quarter three (Q3). They were up 7.1% YoY compared with 7.4% in the previous quarter.

In addition, general merchandise and clothing sales also registered impressive gains in Q4, posting 17.6% and 4.2% growth, respectively.

It all helps to build the picture that Sainsbury’s is ready and waiting to return stronger in the post-pandemic recovery of 2021/22. Sainsbury’s chief executive officer (CEO), Simon Roberts, noted the chain’s ‘bold three-year plan’ to ‘drive improved performance’.

As a consequence, the board has proposed a final dividend of 7.4p per share, taking the total FY dividend to 10.6p per share, in line with the previous year despite a 39% decline in underlying profits.

The confidence from the board resulted in Sainsbury’s shares opening from 250p of today’s trading session. However, there are investor concerns over the possible stagnation of supermarket momentum once the country fully reopens post-lockdown and that led the price to quickly fall to 235.39p within the first hour of trading.

Nevertheless, Sainsbury’s was the only UK supermarket chain to outperform the FTSE 100 index in 2020/21, which could be cause for cautious optimism.

Can the Sainsbury’s share price remain bullish thanks to strengthened ties with Deliveroo?

In order to maintain momentum and shake off fast-expanding discount supermarket chains like Lidl and Aldi, Sainsbury’s is looking to forge an innovative partnership with takeaway delivery brand Deliveroo (ROO.L).

Having successfully trialled Sainsbury’s deliveries via the Deliveroo app in ten stores, the partnership is set for expansion to 22 additional stores across London, Newcastle, Liverpool, Leeds, York, Glasgow and Aberdeen.

Its new two-year agreement will help Sainsbury’s to provide home grocery deliveries to a broader demographic, whilst catering for those who ‘need something in a hurry’, according to Sainsbury’s director of eCommerce, Nigel Blunt.

How will investors react to reports it could go private?

Private takeover speculation also abounds regarding Sainsbury’s in the week of its FY figures. After the successful acquisition of Asda by the Issa brothers, reports suggest that J Sainsbury could be the next high-street supermarket subject to a mergers and acquisitions (M&A) approach. These rumours first circulated in January 2021.

Vesa Equity Investments, owned by Czech billionaire Daniel Kretinsky, opted to increase its shareholding in the firm to 9.99%, acquiring over £300 million worth of shares from Qatar’s sovereign wealth fund.

Vesa confirmed its intentions to acquire ‘strategic minority participations in publicly listed companies across the wider food retail distribution segment’. Mr Kretinsky failed in an attempt to secure a controlling stake in German brand Metro AG (CECG.DE) in 2019. However, a spokesperson for Mr Kretinsky said that Vesa perceives Sainsbury’s as ‘an attractive investment opportunity’.

Go long or short on Sainsbury’s shares after its FY earnings

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1 Tax laws are subject to change and depend on individual circumstances. Tax law may differ in a jurisdiction other than the UK.
2 Deal three times or more in the previous month to qualify for our best rate.

This information has been prepared by IG, a trading name of IG Markets Limited. In addition to the disclaimer below, the material on this page does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. IG accepts no responsibility for any use that may be made of these comments and for any consequences that result. No representation or warranty is given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk. Any research provided does not have regard to the specific investment objectives, financial situation and needs of any specific person who may receive it. It has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such is considered to be a marketing communication. Although we are not specifically constrained from dealing ahead of our recommendations we do not seek to take advantage of them before they are provided to our clients. See full non-independent research disclaimer and quarterly summary.

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