Recently, the UK’s economy has been at gunpoint. Uncertainty revolving around the Brexit aftermath has influenced the performance of local financial markets tremendously. Besides, the ongoing US-China trade tensions have only added fuel to the fire, affecting many world-renowned companies and putting international investors in a quandary.
Taking into account the global economic and political turbulence, it may be rather hard to choose the business sector to invest in today.
In this article, we figure out whether it is the right time to invest in the British retailing sector and take a closer look at one of the country’s largest companies in the industry – Sainsbury’s (SBRY). Below, we cover the company’s basics, check its recent performance and discover what the latest Sainsburys share price forecast looks like.
So, what are the Sainsbury shares: buy or sell?
At a glance: British retail industry overview
The UK retail industry is mainly dominated by supermarkets, represented by the four majors: Tesco, Sainsbury's, Walmart’s Asda and Morrisons. These are closely followed by online retailer Amazon and department stores, such as Marks & Spencer and John Lewis.
Undoubtedly, the retail industry is vital to the British economy. In 2017, it generated over £395b worth of retail sales. A year later, the sector housed more than 319,000 retail businesses.
But, it would be too easy if things were smooth sailing. Today, retail is an industry under pressure. Many businesses within the sector find themselves in an uncomfortable position due to rising costs and weakening demand.
High levels of employment and increasing disposable income have not been enough to raise the consumer’s mood, as confidence remains weak due to ongoing economic and political uncertainty around Brexit. The matter, which has been dominating all the headlines ever since 2016, is expected to cast a shadow over the UK retail industry and determine its success, in the short term at least.
In addition, the shift from a store-based past to a digital future has continued during this year. Today, the way the entire industry functions is being reshaped. Those who are not fast enough to follow the rapid pace of innovations are fighting to survive.
The CEO of BRC, Helen Dickinson, said: “With four months of negative sales growth since March, the ongoing political gridlock surrounding Brexit is harming both consumers and retailers.”
Excluding food, online sales did increase. However, the rise was only 0.7% – the slowest growth on record.
What is Sainsbury's?
J Sainsbury’s plc – generally referred to as just Sainsbury’s – is a large UK-based business operating in the retail industry. The company's key segments include Retailing, Financial Services and Property Investments.
The Financial Services sector includes the operations of Sainsbury's Bank, which provides a range of products, such as mortgages, consumer loans, insurance products, savings accounts and credit cards.
In regards to retail, Sainsbury’s is known for being the British second largest chain of supermarkets, with a 15.3% market share as of June 2019. It has approximately 2,000 food suppliers and over 1,000 non-food suppliers, running approximately 800 supermarkets and convenience stores and offering more than 15,000 own-brand products.
The company’s roots go back to 1869 when Sainsbury's was established. At that time, John James Sainsbury, together with his wife Mary Ann, opened the first shop in Holborn, London. The business’ philosophy was: "Quality perfect, prices lower."
What once was a small shop, now has become a large multi-billion business, with over 187,000 employees and annual revenue of £28.456b in 2018. The Sainsbury's shares are traded on the London Stock Exchange. The company is also a constituent of the FTSE 100 Index.
How did the company perform so far in 2019?
It would be fair to describe the performance of the Sainsbury’s share price in recent months as rather disappointing.
Last year, Sainsbury’s announced its plans to merge with another retailing giant – Asda. Following this news, the company’s share price rallied to over 340p. However, the uplift was short-lived, as many believed the Competition and Markets Authority (CMA) would not let the deal happen. The fears proved well-founded in April 2019 when the CMA confirmed it has blocked the merger.
The company’s annual results in May and a trading update in early July have done little to revive market appetite for the Sainsbury’s shares, which have fallen to 182.50p in mid-August, the lowest level seen in decades.
Once the annual results were announced, the company did not comment on the then-consensus forecast of £652m pre-tax profit for the current fiscal year. However, on June 28th, an updated forecast was published on Sainsbury’s corporate website, with those estimates lowered by £20m.
At the end of September, Sainsbury’s announced its ‘Plan B’ strategy to restore growth, planning to shut down 125 supermarkets and Argos stores and open another 200. In addition, as part of its new strategy, the supermarket chain plans to stop selling new mortgages and to significantly reduce costs and the amount of debt on its balance sheet.
Moreover, Sainsbury’s looking to reduce its debt pile by £300m in the financial year 2019-2020, increasing its three-year net debt reduction target from £600m to at least £750m.
The company said it expects first-half underlying profit to drop by about £50m year-on-year, due to cost savings and higher marketing costs for the decline. Nonetheless, Sainbury’s reiterated its full-year prediction, expecting a strong performance in the second half of the financial year.
After announcing its new strategy, the Sainsbury’s share price has rallied 3% to 223.23p on October 1st, only to fall to 206.80 on October 8th.
Sainsbury share price forecast: what the future holds?
As people seem to be unsure about their own financial prospects ahead of Brexit, weak consumer sentiment is likely to be holding back the wider retail segment in the UK.
In addition, the continued shift towards online retail may mean that Sainsbury’s may see further store closures. But, with the business investing in its supply chain and growing its online presence, there is a great chance it could cope with the digital evolution of the retail segment.
According to the data provided by Wallet Investor, the company’s stock is prognosed to experience a long-term increase, with the Sainsbury’s shares trading at 220.148p by October 2024. Therefore, if you decide to invest in the company today, the revenue in 5 years is expected to be around +6.45%.
Here’s what their long-term Sainsbury share price forecast looks like today:
Hargreaves Lansdown, a UK-based financial service company, has provided the latest broker views of the Sainsbury outlook:
So, what are the Sainsbury shares – buy or sell? Based on another source, MarkerScreener, the average target price of the company’s share is 233.50p. Their latest consensus forecast suggested investors hold their position in the company.
All in all, is this the right time to buy Sainsbury’s shares? In the coming months and years, the Sainsbury's share price forecast is expected to continue to be affected by a number of political and economic developments in the UK, as well as customer sentiment.
If you think you are not ready to make long-term investment commitments, but still want to try to profit from the price volatility, you can do so through contracts for difference, or CFDs.
How to trade Sainsbury’s shares CFDs
A contract for difference, or CFD, is an agreement between a broker and an investor to profit from the price difference between the opening and the closing value of the trade. You can either take a long position, speculating that the price will rise, or a short position, speculating that the price will fall. Therefore, no matter whether you have a positive or negative view of the Sainsbury share price prediction, you can still try to profit from the future price fluctuations.
Learn more about CFD trading with free online courses provided by Capital.com.
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