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The J Sainsbury (LSE: SBRY) share worth stays regular, though the UK grocery store large is the most recent to report strain from escalating worth wars.
With full-year outcomes for the yr to March 2025, the corporate stated it expects no progress in retail underlying working revenue within the 2025-26 yr. The yr simply ended introduced in £1,036m. However Sainsbury solely expects to report about the identical once more for the approaching yr.
Worth wars
In March Asda launched a brand new marketing campaign reducing the costs of round 1,500 traces to attempt to win again falling gross sales. Since then Tesco spoke of “an extra enhance within the aggressive depth of the UK market” in its FY outcomes launch. It says it expects adjusted working revenue to dip in 2025-26.
Nonetheless, not less than Sainsbury isn’t predicting a fall in revenue as Tesco is. And I reckon that reveals a profit from its barely extra elevated market place, the place it isn’t slugging it out for the bottom of the low in pricing.
Buyers don’t appear too fazed by the competitors risk. The Sainsbury’s share worth initially rose 4% when the market opened. As I write it’s softened to about 1.5% forward. That’s not a lot, however it’s constructive.
We’d see a flat interval this yr. However it could be on the again of a really stable 2024-25. And I nonetheless fee it as a comparatively constructive outlook for an organization in such a pressured sector.
Revenue and money
That £1,036m retail underlying working revenue represents a 7.2% rise on the earlier yr. Complete underlying revenue earlier than tax jumped 8.6% to £761m. Underlying earnings per share noticed a barely smaller, however nonetheless welcome, 4.5% acquire.
However right here’s the place I believe Sainsbury may stand out for long-term dividend traders.
Retail free money move of £531m enabled the corporate to raise its full-year dividend by 3.8%. That’s properly above the UK’s slowing inflation fee. The previous yr additionally gave shareholders a lift within the type of a £200m share buyback.
Plans for 2025-26 embody additional buybacks of not less than one other £200m. And we must always see a particular dividend, funded by financial institution disposal proceeds of £250m. Is that this wanting like a money cow, or what?
Hazard forward?
Debt could be one of many largest killers of long-term dividend prospects. And at first look, I wasn’t too satisfied to see internet debt at Sainsbury rise by £204m over the yr to £5,758m.
However wanting nearer, that features lease liabilities, that are actually only a dedication to future spending. Excluding lease liabilities, internet debt drops to simply £264m. That doesn’t fear me within the slightest.
There are nonetheless dangers forward for Sainsbury in as we speak’s unsure market. The corporate may not count on to be hit too laborious by worth competitors within the coming yr. But when we’re within the form of lengthy cut-price battle we’ve seen up to now, that would hand an enormous benefit again to Tesco.
Nonetheless, with a forecast dividend yield now as much as 5.2%, Sainsbury must be price severe consideration for revenue traders.
