Sainsbury’s share price opened the year close to its 52-week high at 230p, but has since fallen away, sliding to 208p on 22 January following the announcement that CEO, Mike Coupe, would leave his role after almost six years.

Choppy ride for Sainsbury’s share price

Like many retailers and other businesses, the stock market tumble caused by the coronavirus pandemic precipitated a sharp fall in March, as Sainsbury’s share price sunk to 171p. It wasn’t long before a swift rebound saw the shares bounce back over the 200p level, and since then it’s been a choppy ride as the shares have flitted around 200p.

Back in 2018, Sainsbury’s share price was trading above 300p, but when its plans for a merger with Asda were largely dashed by the Competition and Markets Authority on 20 February 2019, it fell 18%.

Sales rise offset by higher costs

Supermarkets have been one of the few businesses that have managed to avoid the worst of the coronavirus pandemic. While supermarket peer, Tesco, attracted criticism for not deferring its dividend, Sainsbury’s was slightly more cautious when it released its full-year numbers at the end of April, deferring a dividend decision until the end of the year.

A £500m increase in costs has offset the spike in grocery sales as a result of panic buying in March and beginning of April, while additional safeguarding measures for its staff have also acted as a headwind.

That spike in sales continued into May, with an 11% rise in sales year-on-year, as shoppers gravitated towards the big two supermarkets on the basis of a wider range of products and bigger spend. It also helped that Sainsbury’s online operation, due to its acquisition of Argos, has a lot more resilience than some of its peers.

Will its bank prove a burden?

There are still weaknesses in its overall proposition though. For example, unlike Tesco, Sainsbury’s has held on to its bank, and with a tough macroeconomic outlook for the foreseeable future, it could prove be a drag on profitability.

However, this potential weak spot does have the added cushion of a £450m saving in business rates, bestowed by the UK government in March to help businesses cope during the enforced shutdown caused by the coronavirus pandemic. The rate-holiday was part of a £330bn emergency package unveiled by the UK chancellor, Rishi Sunak, meaning all retail, hospitality and leisure businesses in England qualify for a 100% business rates holiday for 12 months.

Is Sainsbury’s share price undervalued?

Looking ahead at Sainsbury’s share price potential relative to its competitors, the supermarket appears to be in a strong position. Based on investment research firm Morningstar’s quantitative equity research reports, Sainsbury’s is the only stock out of big four retailers to have a 5-star rating. This means that Morningstar’s analysts believe the shares are ‘significantly undervalued’.

For comparison, Tesco and Morrisons currently have a 4-star rating, meaning Morningstar rates the stocks as being ‘undervalued’, while Ocado Group, and Asda-owner, Walmart, have a 2-star rating, which means both shares are rated as ‘overvalued’.

What remains fairly clear though, is that Sainsbury’s new CEO, Simon Roberts, will need to do a lot better than his predecessor if he wants to boost Sainsbury’s share price, and close the gap with the dominant market player, Tesco, in the years ahead.

Sainsbury’s is due to release its first-quarter trading update at 7am on Wednesday 1 July.

 

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