In today’s post let me do two things.
- Test the back-end of the website to ensure that future ‘member only’ posts do not suffer ‘leakage’ i.e. are accessible to non-members
- Introduce the first discretionary purchase for the portfolio.
There are further transactions/purchases in store for the portfolio and these will be made available to subscribers after testing is complete.
I’m aiming to complete testing by the end of today.
***Don’t forget you can meet me in person this Saturday 26th April at The Master Investor Show, The Business Design Centre, 52 Upper Street, Islington, N1 0QH, London.***
Why Sainsbury’s Is Undervalued?
I’m afraid I cannot find a single reason why Sainbury’s (LSE: SBRY) is being trashed by the market the way that it is.
The only explanation is that it is simply being dragged down with the rest of the ‘big four’ – Tesco (LSE: TSCO), ASDA and Morrisons (LSE: MRW) – after the release of a damaging report dated 19 November 2013 covering the period of 12 weeks to 10 November:
all the big four and The Co-operative have lost share this period.
The report goes on:
Sainsbury’s growth of 2.6% is the highest of this group but dips just below the market average of 3.2%.
You cannot expect miracles I suppose but if sainsburys is showing the largest growth for this period then it’s equity seriously merits further investigation, especially as it is currently trading just above tangible book, not bad for a large cap.
Lets dive in.
Information from Morningstar.co.uk
The numbers over the past five years show:
- Consistent dividend growth
- Consistent tangible asset value growth
These are the positives.
The negatives are that Sainsbury’s margins are tight. For example, operating margin is 3.39% which is below the sector average of 5.01 %.
Earnings growth is also rather choppy and to be fair, Sainsbury’s problems are well known:
- Weakest balance sheet out of the Big Four ( they are all pretty weak)
- A recent note by Goldman that cuts it’s price target on Sainsbury to 155p
- A fall in sales for the first time in 9 years
- Food price inflation has slowed benefitting customers but not retailers
But these negatives cannot escape the fact that Sainsbury’s is a well known British high street brand with massive intangible assets. As mentioned it is already selling close to tangible book.
The City have been mumbling about price wars and other matters which frankly I’ve ignored since at the current share price, Sainsburys respresents a large cap stock selling at adiscount to it’s part earnings and below it’s asset value is you include intangibles.
Pilot long position today at 323p, 500 shares, target: 400p, Sainsburys (LSE: SBRY)
Caveat Emptor: if the share price declines I fully expect to buy more.
To view current holdings click here.