Sainsbury's and Auto Trader

Thursday, November 8, 2018 - 09:59

“A wealth of corporate news has stirred new life into the market with the FTSE 100 rising 0.4% to 7,145. Pharma, banking and miners help to lead the blue-chip index higher,” says Russ Mould, investment director at AJ Bell.


“Half year like-for-like sales growth of 0.6% for Sainsbury’s may show an acceleration from the 0.2% growth reported in the first quarter, yet it still seems disappointing when you consider the period included the very hot summer which should have driven additional business for the supermarket and its Argos chain.

“While the latter will have benefited from strong demand for barbeques and paddling pools, the amount of money it made overall on general merchandise sales was negatively impacted by selling lots of lower margin consumer technology products.

“Pre-tax profit when you include a variety of one-off items nearly halved to £132 million. Excluding the exceptional items, pre-tax profit rose by a fifth to £302 million.

“So why hasn’t sales growth been a lot better? First of all, the company has been cutting prices to stay competitive. It also appears to have had some operational issues as the general public has flooded social media for months with pictures of empty shelves in stores across the country.

“Shoppers will quickly lose patience if they can’t find what they want. There are plenty of alternatives, so Sainsbury’s risks losing business to rivals if it cannot keep its shelves stocked.

“Sainsbury’s shouldn’t be making such mistakes given the heightened competition, plus don’t forget it is still trying to finalise its marriage plans to Asda.

Tesco, Morrison and others will be standing with open arms, welcoming disgruntled Sainsbury’s customers, and that’s not something chief executive Mike Coupe can afford to let happen.

“Elsewhere, the clothing results were weak with a 1% drop in sales, blamed on a change in its promotional efforts. It says promotions are now being more closely aligned with key seasonal events. That seems like basic retailing common sense, so why on earth weren’t the promotions aligned before?

“Supermarkets need to be at the top of their game when it comes to running their business and any slip-ups could have negative repercussions.”

Auto Trader

“The better-than-expected first half results from car listings site Auto Trader mean that the damage to the share price caused by eBay’s recent acquisition of its rival has been repaired.

“The fact these numbers were achieved against the backdrop of a fragile new car market also addresses one of the other key concerns dogging sentiment towards the stock.

“Even though around 80% of its business comes from used cars, inventory growth has at least some reliance on part-exchanged used cars.

“But its ability to crank up average revenue per retailer by upselling existing clients to premium products despite a falling number of vehicles on the site is testament to the robustness of the subscription-based model.

“And with full page advert views ticking up to 247 million per month and visits to its online platforms of nearly four times its nearest rival, investors may draw greater confidence on its ability to see off any competitive threat posed by eBay’s ambitions in this space.

“Auto Trader’s strong brand and entrenched position could make it tough to shift from its position as market leader.”

These articles are for information purposes only and are not a personal recommendation or advice.

The daily market comment is written by Russ Mould, AJ Bell’s Investment Director and his team. The article highlights the movement in the main index, winners and losers on the day and any macro-economic announcements.