Thursday 13 February 2014

Analysis of Sainsbury

A British supermarket chain

Company: J Sainsbury

Business: A British supermarket and convenient store company that are currently running 1106 stores. The segments are the: Stores (XL as well as smaller ones), Online Sales (food + cloths), Property Portfolio (not only their own stores), Bank (insurance, credit card, savings and loans), Energy (looking over peoples homes and offering competitive energy tariffs) and finally Entertainment (movies, music, books, games etc.).

Active: Hmmm... I could not find anything besides from that they are active in the UK so they have yet to leave their island.

P/E: 10.7

contrarian values of P/E, P/B, ROE as well as dividend
The P/E for Sainsbury is indeed very nice with 10.7 and the P/B is also great with 1.2 which gives us a very clear buy signal from Graham. The earnings to sales are down at 3% which is slightly worse than for instance Tesco. The ROE is only so, so with 10.7% and the book to debt ratio is ok with a ratio of 0.8. Their growth in the last five years has been yearly 4.27% which is well above inflation so excellent and this then gives us a motivated P/E of 15 to 17 which means that Sainsbury today is a bit undervalued on the market. They pay a nice dividend of 4.9% which represents almost 53% of their earnings so high but still in an acceptable range and with a buffer to prevent them from being forced to decrease the dividend which has been steadily growing for the last five years.

Conclusion: I as well as Graham find Sainsbury to be a very nice company. Several of the key figures are in an excellent range: P/E, P/B and the dividend. What I do not really like is the ROE but with the nice dividend I could still accept it. I am however still hesitant to add it to Stocks of Interest list. I think the main reason is that they are only in the UK which means they as a company have little diversification on their own. Should that matter? Should it be added to the Stocks of Interest list?

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Anonymous said...

What about Tesco?

Fredrik von Oberhausen said...

Tesco has been analysed and you can find it to the left either among the labels or by searching. I liked tesco!

Anonymous said...

Isn´t ROE blown up by large debt? Nice stores anyway.

Fredrik von Oberhausen said...

Yes ROE can be blown up by large debt but Sainsbury has neither enough debt for doing so or high ROE enogh for suspecting that. Their book to debt is better than both walmart and tesco as example.

For blown up ROE due to debt you should look at IBM for instance which seems to me to be a perfect example of this.