What was meant to be a supermarket sweep turned into a clean-up in aisle three for Sainsbury’s, the firm’s sector-dominating ambitions dealt a fatal blow by the CMA.
Having climbed towards £2.96 in mid-February, speculation that the authority wasn’t going to allow the Asda deal to go ahead weighed on the stock, including a 17% plunge on February 20th as the CMA reported ‘extensive competition concerns’.
Despite the writing being on the wall, it was still something of a shock when the body confirmed it was blocking the tie-up on April 25th, stating it had no other option in the face of what it described as ‘a poorer shopping experience’ for all of the supermarkets’ UK shoppers. This left the stock in a bad way, with J Sainsbury shares now at a current trading price, and 33-month nadir, of £2.15.
Considering the state of January’s Q3 results, Sainsbury’s really could have done with that deal going through. Across the quarter like-for-like sales tumbled 1.1%, way worse than the 0.3% decline forecast. This as a 0.4% increase in grocery sales was wiped out by a 2.3% slide in its difficult, Argos-led non-food household goods division.
Given the collapse of its Asda merger, Sainsbury’s will need to do a lot to get investors back on board on Wednesday. A better set of like-for-like sales in Q4 is required; ditto the delivery of the estimated 6.3% increase in underlying pre-tax profit to £626 million. An idea of how much the failed deal has cost – back in November the bill was already at £17 million – could help dictate the post-results reaction, as will an update on the status of Mike Coupe as CEO.
J Sainsbury shares have a consensus rating of ‘Hold’ alongside an average target price of £2.67.
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