Looking to buy Sainsbury’s Shares? Tread carefully!

Feb 18, 2015   //   by James Helliwell   //   Breaking News  //  Comments Off on Looking to buy Sainsbury’s Shares? Tread carefully!

Looking to buy Sainsbury’s Shares? Tread carefully!

Sainsbury's sunset

Sainsbury’s is a supermarket with a great history. Established in 1869, the company made a name for itself with its emphasis on quality. It became one of the biggest stores in the UK pretty quickly. And at the death of the founder in 1928, it had 128 stores.

The company revolutionised the UK shopping sector with its launch of self-service stores and larger supermarkets post 1956.

However, the company faced a difficult time in the 1990s. It was a period when they lost ground to other businesses in the sector like Tesco, as a result of their inability to home in on the emergence of loyalty cards as well as the growing importance of non-food retailing. It officially lost its leading position in the market to Tesco in 1996 and is yet to reclaim that position today.

Analysing financial figures

The latest figures from the supermarket showed a £290 million pre-tax loss. This follows experts warning that supermarket sales will fall in the UK over the coming years. The company also announced it will cut back on new store launches and close 40 sites among new ones opened last year.

Underlying pre-tax profit figures have dropped by 6% to £375 million. At the same time, like-for-like sales were down on 2.1%. Meanwhile, the company also announced possible new concessions in 25% of its stores which it believes have under-utilised space. This is in a bid to increase ROI and give new and existing customers more reasons to visit.

The interim dividend is at 5p per share presently, but it is unclear what it will be at the close of the company’s financial year (ending March 2015). However, the view of analysts at IG, a CFD and financial spread betting provider that recently launched an online stock broking service, is that the company will follow in the footsteps of other retail giants like Tesco by cutting back on dividends. This is reasonable course of action as cash needs to be freed up for use in other pressing areas.

Shares in the company hit 282p in the first half of last year. This is a sharp decline from the 420p posted in November 2013. The shares are expected to fall to 240p first and 220p over the next financial year.

Analysts at IG.com warn that the supermarket sector as a whole should be regarded as a highly risky proposition. Therefore, investors will be better served looking at other areas of the financial markets as there are companies that have steadier share prices and a better financial outlook.

The general mood in the supermarket sector should see a halt in bull action for the foreseeable future and so traders may be better off developing a bearish bias for the months ahead.

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