Market News & Analysis
Sainsbury’s shares hinge on Asda decision
Ken Odeluga January 9, 2019 9:19 PM
Sainsbury’s lagged supermarket rivals over Christmas, raising stakes for the regulator’s decision on its Asda deal.
Stakes raised for Asda buy
With food sales growth swinging wildly between 0.5% and 2% in preceding quarters though, grocery isn't exactly Sainsbury’s anchor. The fact is, when rivals pull out the stops, typically over Christmas, Sainsbury’s usually robust food business faces pressure; partly due to the group’s tricky mid-market position. Together with the underlying group sales let down in Q4, these conditions raise the stakes for the acquisition of Asda (the winner in Christmas sales growth stakes, according to Nielsen and Kantar). More to the point, the CMA's decision on potential market share remedies (store disposals) is even more critical now. The group has been fairly clear that the rationale of the deal will be undermined if the regulator requires store sales in the hundreds.
Suppliers in focus
Preliminary CMA thinking, released in the autumn— that it will consider discounters and Amazon—seemed to be in Sainsbury’s favour. The outcome of a broader review should prescribe fewer store disposals. Sainsbury’s goal of taking more share via scale would then be in sight. Still, the supplier piece is less predictable after the CMA signalled that buying power inequalities would also be a priority. Provisional findings are likely within weeks, ahead of the 5th March statutory deadline.
CMA holds retail cards
After fair but tortuous progress by supermarkets in late-2018—also likely to be reflected in Tesco figures tomorrow—investors will zero in on operators with the best perceived defences for the year ahead. Shares in all Big 3 supermarkets sagged sharply in 2018. Sainsbury’s was actually 41% higher in August. Consequently, the CMA’s decisions will rock the sector further and decide whether Sainsbury’s shares unwind even more.
This report is intended for general circulation only. It should not be construed as a recommendation, or an offer (or solicitation of an offer) to buy or sell any financial products. The information provided does not take into account your specific investment objectives, financial situation or particular needs. Before you act on any recommendation that may be contained in this report, independent advice ought to be sought from a financial adviser regarding the suitability of the investment product, taking into account your specific investment objectives, financial situation or particular needs.
GAIN Capital Singapore Pte. Ltd., may distribute reports produced by its respective foreign entities or affiliates within the GAIN Capital group of companies or third parties pursuant to an arrangement under Regulation 32C of the Financial Advisers Regulations. Where the report is distributed to a person in Singapore who is not an accredited investor, expert investor or an institutional investor (as defined in the Securities Futures Act), GAIN Capital Singapore Pte. Ltd. accepts legal responsibility to such persons for the contents of the report only to the extent required by law. Singapore recipients should contact GAIN Capital Singapore Pte. Ltd. at 6826 9988 for matters arising from, or in connection with the report.
In the case of all other recipients of this report, to the extent permitted by applicable laws and regulations neither GAIN Capital Singapore Pte. Ltd. nor its associated companies will be responsible or liable for any loss or damage incurred arising out of, or in connection with, any use of the information contained in this report and all such liability is hereby expressly disclaimed. No representation or warranty is made, express or implied, that the content of this report is complete or accurate.
GAIN Capital Singapore Pte. Ltd. is not under any obligation to update this report.
Trading CFDs and FX on margin carries a high level of risk that may not be suitable for some investors. Consider your investment objectives, level of experience, financial resources, risk appetite and other relevant circumstances carefully. The possibility exists that you could lose some or all of your investments, including your initial deposits. If in doubt, please seek independent expert advice. Visit cityindex.com.sg for the complete Risk Disclosure Statement.
Cryptocurrencies are not legal tender currency and trading of derivatives on Cryptocurrencies are currently not covered under any regulatory regime in Singapore. Consequently, investors should be aware they do not have protection under the Securities and Futures Act (Cap. 289). Please ensure that you are fully aware of the risks.