Top UK Stocks to Watch: Sainsbury’s upgrades guidance as sales soar

Sainsbury’s raises its guidance after sales rise over Christmas, Entain bids for Enlabs, B&M pays another special dividend, and Mitchell & Butlers considers raising equity to survive the latest lockdown.

UK

Top News: Sainsbury’s upgrades guidance as sales soar

Sainsbury’s said it expects underlying pretax profit to be £330 million this year, 22% higher than its previous target of £270 million.

The upgrade came as Sainsbury’s sales surged higher over the Christmas period. The country’s second-largest supermarket chain said like-for-like (LfL) sales were up 9.3% over Christmas. Overall sales in the third quarter increased 6.8% while LfLs rose 8.6%. Grocery sales were up 7.4%.

The update comes the day after rival Morrisons reported strong sales growth over the busy holiday period.

Notably, general merchandise sales were up 6%, with Argos reporting stronger growth of 8.4%. Clothing sales, which have struggled this year as people stay at home, managed to edge 0.4% higher. The supermarket also provided an insight into how it is expanding its online offering. Online grocery sales surged 128% higher in the quarter, and Sainsbury’s said it now makes 44% of all its sales online.

While the upgrade has been welcomed by shareholders, sending shares higher, it will still be a steep drop from the year before and the new guidance implies underlying pretax profit could plunge up to 43% from the £586 million reported the year before. The new guidance takes into account the £410 million of business rates relief that it has promised to return.

While supermarkets have been able to reap the rewards of being one of the only retailers allowed to stay open during lockdowns, it has also pushed up the costs and hurt profits this year. They have had to hire more staff, install more safety equipment and work at reduced capacity. The shift online is also weighing on profitability as it is much lower margin than selling stuff in stores.

Sainsbury’s shares were up 3.9% at 241.6p in early trade, at an almost two year high.


Sainsbury’s share price: technical analysis

The price trades above its 20 and 50 sma on the daily chart and above an ascending trendline dating back to mid-September indicating a well-established bullish trend. 

The RSI is above 50 but below the over-bought level of 70 indicating that more upside could be had.

The gap higher has seen the price take out December 2019 high of 236, which now acts as immediate support. A break-through here could see the price head back towards 225 a confluence of horizontal support and the 20 sma.  A break below 220 the ascending trendline would negate the current bullish trend.

On the upside, Sainsbury’s share price could target 260 and 280 levels which were prominent across 2017 and 2018.



FTSE 100 news

Below is a guide to the top news from FTSE 100 shares today.


B&M reports strong growth and pays another special dividend

Discount chain B&M said it will pay a special dividend of 20p per share after posting another strong quarter of growth. The special payout will be made to investors on the register on January 15 and hit bank accounts of January 29.

The company said revenue grew by 22.5% in the third quarter of its financial year covering the 13 weeks to December 26 – a marked acceleration from the 9.9% growth reported a year earlier. B&M store sales in the UK jumped 26.6% and like-for-like growth of 21.1%, while outlets in France and its Babou unit reported a mild 1.4% decline after being hit by lockdowns.

Still, B&M said it expects to make annual adjusted Earnings before interest, tax, depreciation and amortisation of £540 million to £570 million in the year to March 27, down from the £600 million to £650 million it expected in early December.

B&M shares traded 0.5% lower in early trade at 526.9p.


Entain upgrades guidance and makes bid for Enlabs

Entain, the bookmaker formerly known as GVC Holdings, said it expects to make annual Earnings before interest, tax, depreciation and amortisation (Ebitda) of £825 million to £845 million in 2020, 6% to 8% higher than its previous target range.

The company also said it has had a takeover offer for Enlabs has been recommended by the company’s board. Entain said it has made an offer of SEK40 per share, worth a total of SEK2.8 billion, equivalent to £250 million.

Shareholders that have a combined stake of 42.2% in Enlabs have also said they intend to accept the offer.

Enlabs is a gaming operator working in the Baltics. It is the market leader in Latvia, the second biggest in Estonia and among the largest competing in Lithuania. Entain does not currently have exposure in these regions and is hoping to make a strong entry through the acquisition.

Entain said Enlabs is expected to generate net gaming revenue of EUR89.5 million and Earnings before interest, tax, depreciation and amortisation of EUR23.5 million in 2021, and provide a boost to its own earnings in the first year.

Notably, Entain itself was a takeover target earlier this week when US partner MGM Resorts made an £8 billion bid for the business. Entain rejected the offer and claimed it undervalued the business, but left the door open to a higher bid by asking for the rationale behind the offer.

Entain shares were up 0.9% in early trade at 1472.8p.


FTSE 250

Below is a guide to the top news from the FTSE 250 today.


Mitchell & Butlers considers raising equity to survive lockdown

Mitchell & Butlers said the uncertain outlook for the hospitality industry has prompted it to consider raising equity to bolster its balance sheet.

All of its sites in England have remained closed since December 30, as gradually tighter restrictions slowly hampered its performance during the final months of 2020. The company said total sales were down 67% in the first quarter covering the 14 weeks to January 2, while like-for-like sales were down 30%.

‘We welcome recent positive news on vaccine approval and roll-out but the future facing the hospitality sector remains extremely uncertain. It is not possible to estimate with any confidence what restrictions on our ability to trade lie ahead of us and for how long. As a result, the directors believe it is prudent to explore an equity capital raise, to give the group increased financial and operational flexibility. No decision has yet been made with regards to the timing, size, or terms of any such equity capital raise,’ said the company.

The pub chain said it has £125 million cash on hand but warned monthly cash burn has risen to £35 million to £40 million as all its sites remain closed. That excludes debt repayments, which will add a further £50 million outgoing each quarter.

Mitchell & Butlers shares were down 8.5% at 218.5p in early trade.


TP ICAP launches rights issue to fund Liquidnet acquisition

TP ICAP is launching a £315 million ($427 million) fully-underwritten rights issue to help fund the acquisition of Liquidnet Holdings.

The company agreed to buy Liquidnet in October and the deal included terms that a $525 million cash consideration would be mostly funded through a rights issue. The total consideration could rise as high as $700 million. TP ICAP hopes to create a global financial markets infrastructure giant based in the UK through the deal.

‘This acquisition is a unique opportunity to transform TP ICAP's growth prospects by materially accelerating our stated strategy of electronification, aggregation and diversification. We believe our two businesses are highly complementary and the deal, when completed, will help us to drive growth and shareholder value in the medium to long term,’ said chief executive Nicolas Breteau.

The rights issue will be on 2-for-5 basis and priced at 140p. The offer is sizeable as the 225.3 million new shares that will be issued will account for 28.6% of the enlarged share capital of the business.

TP ICAP also provided a separate trading update that said it expected annual revenue to be down 1% year-on-year in 2020, stating it demonstrated the ‘resilience’ of the business and the benefits of its diversification strategy.

TP ICAP shares were down 2.2% in early trade at 240.4p.


Cairn Energy announces details of share consolidation

Cairn Energy said it intends to carry out a share consolidation by issuing 11 new shares for every 13 shares currently in issue. The company said in December that it would be consolidating its shares when it revealed it would be paying a 32p special dividend to return $250 million to shareholders.

This will reduce the number of shares in issue but will not impact individual stakes in the business.

Cairn Energy shares were down 0.5% at 210.3p in early trade.


Trainline launches £150 million bond

Trainline said it has launched a £150 million senior unsecured convertible bond that will mature in 2026. The company said the funds would help bolster the balance sheet and protect the business ‘in an extended COVID downturn scenario while giving greater flexibility to invest in possible future growth opportunities.’ Trainline has been hard-hit by the slump in travel during the pandemic this year.

The bonds will carry a coupon of between 1% to 1.5% and repayments will be made twice a year, once in January and the other in July. The bonds can be converted into securities at a premium price of between 45% to 50% of the volume-weighted average price of shares today.

Trainline also said its lenders have agreed to provide a further waiver to its covenant tests by launching the new bond. Lenders had agreed to waive tests until August 2021 but have now agreed to waive them until August 2022.

Trainline shares were down 5.4% in early trade at 450.5p.


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