Sainsbury's share price forecast 2021: will the company adapt to the industry’s new reality?
Shares in UK supermarket chain Sainsbury’s (SBRY) have dropped by 15 per cent this year, despite grocery sales rising at their fastest rate in more than two decades during lockdowns to tackle the Covid-19 pandemic. What is driving the company’s stock lower? And what is the SBRY share price forecast 2021 and beyond?
In this article, we look at the stock’s recent movements, analyse factors behind those fluctuations, and review the latest Sainsbury's share price forecast to get you prepared for what might come next.
The UK retail industry today: grocery sales soar during the pandemic
The highly competitive grocery market in the UK makes for volatile stocks. Investors closely following Sainsbury’s share price news would have seen that the stocks of three of the four largest retailers – Tesco (TSCO), Sainsbury’s and Morrisons (MSW) – have all fallen by 15 per cent year to date, while the share price for online supermarket Ocado has doubled since the start of the year.
SBRY stock started 2020 at £2.32, traded between £1.75 and £2.16 in March during the broader market sell-off and subsequent rebound, and then fell to £1.79 on September 1, right before moving back up to around £2 per share.
Grocery sales rose by 17 per cent in mid-May to mid-July, the fastest growth rate since 1994, according to an analysis by data and consulting company Kantar.
The latest market share figures from Kantar show that take-home grocery sales rose by 10.8 per cent during the 12 weeks to September 6. That was the fifth consecutive three-month period of double-digit growth, although sales slowed in August as some Covid-19 related restrictions were lifted in the UK and the government encouraged consumers to eat out to support restaurants and cafes.
Pandemic lockdowns have driven the growth of online retail – especially in the grocery market. Online grocery sales rose by 77 per cent year on year in the four weeks to September 6, Kantar said, although they slowed for the second straight month and dropped back to 12.5 per cent of total sales from a peak of 13.5 per cent.
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Sainsbury’s cedes market share, faces increased costs
When deciding what to do with Sainsbury shares – buy or sell, investors should consider its position in the market. Sainsbury’s was founded in 1869 and listed on the London Stock Exchange in 1973 – at that time, the largest-ever initial public offering on the exchange.
Sainsbury's share price has been in decline since 2018, as the largest supermarket chains have lost market share to discount retailers. The stock fell by around 10 per cent in 2019 and reached its lowest level in 30 years.
Sainsbury’s market share has dropped to 14.9 per cent from 16 per cent in 2019, data from Kantar shows, while competitors like Aldi, Lidl, and Co-op have gained ground.
In the most recent 12-week period, Sainsbury’s sales increased by 8 per cent year-on-year, lagging behind the likes of Ocado, where sales were up by 41.2 per cent, Iceland, which increased sales by 20.8 per cent and Co-op, where sales rose by 13.4 per cent.
Simon Roberts, Sainsbury’s chief Executive officer, said in the company’s most recent trading statement in July: “Our business has changed fundamentally from four months ago.” The company’s digital sales more than doubled during the 16 weeks to June 27, although that has reduced the company’s margins as it has invested in its online offering and online orders are less profitable than in-store sales.
Covid-19 is expected to have an impact of more than £500m on Sainsbury’s profits, offset by relief from the government on business rates and the rise in grocery sales.
Sainsbury’s is following a new strategic growth plan after its costly failed merger with Asda in early 2019, which drove the share price sharply lower. The UK competition watchdog Competition and Markets Authority (CMA) blocked the £10bn merger, finding that the deal “would lead to increased prices, reduced quality and choice of products, or poorer shopping experience for all of their UK shoppers”.
The merger would have enabled Sainsbury’s and Asda to cut costs by creating the UK’s largest grocery retailer and make the combined company more competitive with the discount retailers that have lower costs. Sainsbury’s is facing high costs and high levels of debt. Its net debt was £6.9bn as of March 27, compared with £7.35bn a year earlier.
“We do not expect the current strong sales growth to continue. A number of the decisions we have made have materially increased costs but meant that we have done the right thing for our customers and set us up well for the future,” Roberts said in updating investors on the company’s outlook.
Sainsbury’s share price forecast 2021: can the stock turn around?
Sainsbury’s share price is likely to continue to trade lower, at least in the near term. In fact, SBRY is one of the most shorted stocks on the London Stock Exchange, with short interest as much as 8.5 per cent in August according to the Short Tracker, indicating hedge funds expect the share price to decline.
Technical indicators show a mixed picture for the SBRY share price. The moving average convergence divergence (MACD) signal indicates possible negative momentum, however, the price has crossed above the 20-day moving average, which is a bullish signal.
Shore Capital last month reiterated its recommendation to buy the stock with a Sainsbury share price forecast of £1.87, and the stock has since risen above that level. Analysts at Barclays (BARC) also recommended the stock as a buy ahead of its interim results on November 5, citing its strong underlying free cash flow, anticipated higher sales and strategic update. Their price target of £2.50 per share indicates a potential upside of around 25 per cent.
Among analysts that cover the stock, nine have issued buy ratings, three recommend holding the stock and two have sell ratings. The consensus Sainsbury's stock price prediction is £2.29, indicating an upside of 16.5 per cent from the close on October 8.
Technical forecasting service WalletInvestor indicates the share price will continue to decline, falling to £1.89 in December. Its Sainsbury's share price forecast 2021 shows the price dropping further to £1.58 by the end of the year and slipping to £0.98 by December 2023 and £0.44 by October 2025