Sainsbury still has much to prove after Coupe era of strategic shifts

And he’s gone. Nine months after the Competition and Markets Authority blocked the proposed merger between Sainsbury and Asda, Mike Coupe, boss of Sainsbury and architect of the deal, has announced his intention to step down in June. At least the share price is showing him the courtesy of going down on the news, even if strategic and operational question marks still hang over the company after his near six-year tenure.

Sainsbury has been the worst performer of the major quoted grocery firms in the UK during Mr Coupe’s time as CEO, which began on 9 July 2014.

Since 9 July 2014
  Change in share price (%) Total return (%)
Ocado 241.7% 241.7%
Morrisons 7.2% 37.2%
Tesco (13.6%) (8.60%)
Sainsbury (31.3%) (12.7%)

Source: Refinitiv data

This may well reflect how Sainsbury’s profits (on a stated and adjusted basis) are lower than when Mr Coupe took over. He also oversaw two dividend cuts, even if the distribution had already been reduced in the year before he took over and last year Sainsbury managed its first increase in its annual dividend since the year to March 2013.

Source: Company accounts, Sharecast, consensus analysts' forecasts

As such it is not clear whether Mr Coupe has been able to truly turn around Sainsbury’s fortunes in the face of the onslaught from online rivals and the discounters, despite a ferocious pace of activity, which included the acquisition of Argos, the dissolution of the inherited partnership with Netto and the failed Asda plan.

Since July 2014, Sainsbury’s market share has dropped from 16.6% to 16.0%, while that combined slice of the pie owned by Aldi and Lidl has surged to 13.7% from 8.4%. However, supporters of Mr Coupe will point out that Sainsbury lost less share than Tesco (2.7 percentage points), Asda (2.2 points) and Morrisons (0.7 points), adding that his charge overtook Asda for the number two slot in the process.

UK grocery market shares

Source: Kantar Worldpanel

It is also fair to say that Mr Coupe had an easy job and it seems unlikely that his successor Simon Roberts will be able to lay his hands on any quick fixes. The UK grocery market is mature and highly competitive, so growth of any kind is going to be hard to come by.

After a brief renaissance and period of like-for-like sales growth in 2018 and early 2019, momentum has ebbed again and the most recent comparisons have been negative.

Source: Company accounts

Mr Roberts’ is currently the retail and operations director at Sainsbury and it may be that he place his focus on getting the best out of the existing assets by staunchly defending market share through investment in IT, supply chain management and meeting customers’ changing requirements when it comes to the sourcing and packaging of products, as well as their price points.

Sainsbury’s shares trade at a valuation discount to Tesco and Morrisons on an earnings basis and a premium on a dividend yield basis. This suggests that investors are not entirely sure about the strategic legacy that Mr Roberts is inheriting, especially as investors appear to be demanding a higher yield to compensate themselves for the perception that there are greater risks associated with the stock, and perhaps a period of calm on the corporate structure and focus on the day-to-day performance of the core business is what they are after.

  Price earnings ratio (PE) Dividend yield (%)
  Share price (p) 2020E 2021E 2020E 2021E
Tesco 245 14.6x 13.4x 3.3% 3.7%
Morrisons 186 14.3x 13.5x 3.7% 3.9%
Sainsbury 211 11.0x 10.7x 5.2% 5.2%
Ocado 1,348 loss loss 0.0% 0.0%

Source: Refinitiv data. Morrison fiscal years to Jan 2020 and Jan 2021. Tesco fiscal years to Feb 2020 and Feb 2021. Sainsbury fiscal years to Mar 2020 and Mar 2021. Ocado fiscal years to Nov 2019 and Nov 2020. Excludes special dividends.

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