As Inflation returns, will we see a recovery in the share price of Sainsbury, Morrisons and Tesco?

Wednesday, Jul 19 2017 by

After three years in the doldrums that has even caught Warren Buffett out (his Tesco’s stake cost him a lot of money).

Is this the time to consider investing in Sainsbury’s, Morrisons and Tesco?

Or, will we see further problems ahead?

To be fair, both Sainsbury and Tesco’s share price saw stabilisation, while Morrison’s shares are up 70% from their lows of £1.39.

But for a sustainable recovery, we need to understand the factors that are driving the UK grocery market.

Let’s get started. 

UK Grocery Market – Identifying the Driving Force


Inflation, Inflation and Inflation!

Inflation plays an important role for grocers because they can raise prices to earn themselves higher margins than normal. But the past three years saw consumer inflation fall close to zero, but food prices went into deflation and are recovering. 


Food inflation is currently at 2.1% and is a big factor in the recovery of like-for-like sales to the big supermarkets. 


Whether this is a temporary recovery or a permanent recovery, it is too early to tell. In the past rising food prices resulted in profits bonanza for the “BIG FOUR” UK supermarkets. Now, the game has changed.    


New Players in Town

Well, these new players have been operating in the UK since the 1990s. Only recently, and I mean four or five years have they made a dent to the big supermarkets by eating away their market share. (See Below)

Table 1: - UK Grocery Market Share


For both Aldi and Lidl, they now account for 11.9% of t he UK grocery market and have gained 7.3% in market share from 4.6%, more than a decade ago.

To put this in perspective, both Aldi and Lidl have achieved average market share growth of 10% and 8.4% per year for the past ten years, while Waitrose grew 2.4% per year.

Meanwhile, the BIG FOUR saw average market share decline of between 0% and 1.1% per year.


This market share growth doesn’t come from growing sales at existing stores, but from opening new ones.

Aldi is opening 70 new stores in the UK, but their long-term ambition lies in opening 1,000 new stores to total 2,500 stores, which would rival Tesco. For Lidl, they are looking at opening 60 new stores per year. That strategy will encroach upon the existing stores of the “Big Four” and will cannibalise their sales. At the same time, it forces them to lower prices to match discounters’ prices, putting pressure on margins. 

Will the size of the UK Grocery market save the “BIG FOUR”?

Sales aren’t the issue. For instance, Tesco had 31.1% market share in 2006 with UK revenue at £29.9bn. Eleven years later, Tesco grew UK revenue to £43.5bn, but market share fell to 27.5%. That’s down to the growth in overall UK grocery market (and the demise of non-food businesses). In that period, the UK grocery market has increased by £51.3bn or 40% increase.  


If this continues in the next decade, the UK Grocery market could reach £240bn to £250bn a year. Then you could conclude that the pie is big enough for all players.

That is the wrong conclusion because sales aren’t the issue, it is cash earnings. It raises this question:

How much margins are they sacrificing for sales?

If the “making money” part doesn’t exist, then it is not worth being in business.   


Now, for the fundamentals. 

Companies Fundamentals


Before we get into the fundamentals. Here are some brief backgrounds: -

1. Sainsbury’s has retaken second place from Asda in 2016 by performing less badly. Also, they recently bought Argos owner The Home Retail Group for over £1bn, which extends their non-food products availability.

2. The UK biggest grocer Tesco is dealing with the fallout of an accounting scandal that saw shareholders get compensated for £85m.

In order to restore some reputation, they decided to write down their assets causing them to report the biggest accounting loss (£6.4bn) in history from a UK retailer. 

Tesco’s market share fell from 31.3% to 27.5% in the past eight years.

3. Morrison’s share price recovery from their lows in 2016 is down to rumours of a takeover from a private equity firm.

But a better takeover rumour could come from Amazon because both companies have a partnership deal to supply Amazon Fresh. Given Amazon takeover of Whole Foods, this is becoming a real possibility. Meanwhile, their partnership could increase profits by £50m to £100m.

However, investors aren’t happy with management pay structure, with more than half voting against big bonus increases from long-term performances (an increase from 240% to 300% of basic salary). Also, EPS performance target is lower to 5-10% from 6-13% growth.


Staff Productivity


Supermarkets employ a lot of people (Tesco’s 218k, Morrison’s 77k and Sainsbury’s 119k full-time equivalent UK employees), therefore relevant to operational performances.

Using the average “full-time” employee data we depict the following:

Initially, both Sainsbury and Tesco produces more than Morrisons (£30k to £40k more sales per staff).  

Over time, Morrisons has caught up.

Meanwhile, Tesco’s sales maturity turned into a decline with sales per staff falling below £200k. 


(P.S. Tesco’s figures are based on their UK business.)

With sales per staff stagnating, how will the grocers manage to keep costs low and maintain margins?

The answer is they couldn’t (see below).

Using normalised earnings, all three grocers saw profit per staff falling.

Tesco was the biggest faller, as it fell below their rivals.


The reason is down to staff costs rising per person. For example, Sainsbury’s staff costs rose from £18k to £24k in ten years. The problem began when sales per staff stall, while wages rose a further £1.3k (£24k minus £22.7k).

Still, employee data is a lagging indicator, unless you are Tesco!


Cash Cycle

All three register negative cash cycles. After all, customers were paying for food in cash. 


However, a closer look would see analysts pick Morrisons as the odd one out.

Morrisons minus 32 days, compared Sainsbury’s minus 11 days and Tesco’s minus 12 days helps reduce working capital requirements, but this leads to delaying payments to suppliers. The 10-year average is 35 days and currently, stands at 50 days. Both Sainsbury and Tesco payable period are 38 days and 34 days.

Also, Morrisons trade payables have doubled, compared with sales growing by 35% in the same period, another way of checking payment delays.  

Tesco accounting scandal is due to delaying payments to suppliers to bolster cash earnings. I’m not saying Morrisons is guilty of that, but it warrants further investigation.

Meanwhile, Sainsbury deteriorating cash cycle is due to their acquisition of Argos.


Capex and Assets

Supermarkets are “asset heavy” businesses, despite the growth in online shopping. Therefore, it’s a good idea to examine the value placed on these assets and spot changes to capex spending. 

Below is an overall look: 


The first obvious trend is the slowdown capital spending as capex to depreciation fell to either 1.1 or 1.2, a big drop from their ten-year average of 1.8 to 2.4 times. It barely sustaining their business size.

While this is going on, Morrisons and Sainsbury are saving a few hundreds of millions in capex, whereas Tesco saved around £2bn to £2.5bn each year for the past two years.

Low spending won’t last for long. Already, Tesco is eyeing a purchase of Booker for £3.7bn (if successful).


Sales growth for all three averages 3%-4% per year, compared with double-digit growth from Lidl and Aldi.


Looking at assets valuation, Tesco overall assets are at 54% of original costs, compared with the average 70%, due to the writedowns of between £4bn and £4.5bn. When compared to Sainsbury’s and Morrisons, Tesco’s assets are 10% and 14% lower respectively. 

Now, let’s see the compositions of the overall assets.  


To make things simple, let’s divide this into two sections:


Land and Building/Freehold and Leasehold

Both Tesco and Morrisons are valuing their prized assets at less than 70% of original costs, whereas Sainsbury’s is putting a value of 76%.

On their ten-year average, all three grocers had these assets above 80% of original costs.  

Revaluation, a probability?

Take Tesco, for example. If business returns back to normal, they can revalue their assets back above 80% and could potentially realise a £3bn in accounting gain. Or, Tesco could revalue their assets slowly plug any shortfall of earnings over a number of years.  


Fixtures and Equipment


In 2015, Morrisons wrote off £1.5bn of assets. (See annual report 2016) Although they reported £1.1bn of impairments, they didn’t revalue the net book value (the number that gets reported in the balance sheet) causing it to register 60% of original costs, rather than the average of 36%.

Normally, writedowns are reflected on the balance sheet.   

That resulted in shareholders’ equity being £300m to £400m higher.

Instead of Morrison reporting 2016’s equity of £3.75bn, it should be around £3.3bn to £3.35bn.


Unlike, Tesco, Morrisons won’t see improvements in profits from revaluations.

Again, Tesco has written-off more of their fixtures with NBV at 23.5% of original costs.


Overall, Tesco will see asset value realisations, if business gets back to normal. That remains a distant dream for the traditional supermarkets.



All three supermarkets saw improvements in their net debt positions with Tesco seeing the largest.  


But, what if these improvements are slightly exaggerated?

For the diligent analysts, another appropriate measure is what I term “Real Net Debt.”

It includes:

Original net debt;

Trade Receivables (minus);

Trade Payables (plus) and

Pension deficits/surplus (plus/minus).


It resulted in this chart. 


Improvements not that noticeable, also it reflects a shift in borrowing strategy to “non-interest” credit lines.  

Still, these figures are better than 2015.

Some of the debt reductions are down to disposal and sales and leaseback.

For instance, Tesco sold their South Korean business Homeplus for £4.2bn, Dobbies Garden Centres for £200m, Lazada stake for £90m,  Private jets for £66m, and Harris + Hoole coffee shops for an undisclosed sum.

Meanwhile, Morrisons net debt improvements are due to increasing transactions of its sales and leaseback, which saw operating lease growing rapidly (see section: Operating Lease). Anyone who studied Tesco diligently knows this method is short-term and leads to long-term problems.


Making sense of net debt and real net debt

Comparing it to sales and assets paint a picture on the proportion to the size of the business.

Table 2: - Debt, compared to Sales and Assets  


When it came to net debt, all three saw big improvements, but real net debt exposes Tesco and Morrisons (current figures above ten-year averages), while Sainsbury produces the best improvement.

For proof, look no further than “net interest costs”, where Sainsbury is falling, while Tesco and Morrisons are rising.  


Table 3: - Debt against Normalised Earnings 


Again, Sainsbury made the best improvements, while Tesco and Morrisons saw high multiples.  

To be fair, Sainsbury has been highly-leveraged in the past, that is now seeing slight improvements.



The effect of the UK interest rate being close to zero and the stock market at record highs resulted in lower Gilts yield and dividends yield. That has caused pensions assets to return money every year (in proportion to pension assets size).  


Here are some interesting data, when comparing pension assets in 2006 to today: -

Sainsbury’s pension assets grew by 167%, but the absolute returns increase a measly 30%, which currently yields 2.78%, a far cry from 5.74%.

Tesco grew their pension assets by 283% to achieve 84.2% in expected returns. Current yield is at 2.92% from over 6%.

Meanwhile, Morrisons increased their assets by 204% to increase expected returns by 74%, while it is currently yielding above 3%.


With the continuation of low returns, these grocers have to contribute more of their profits to pay for past employees’ retirements.

This trend affects all businesses that have established pension schemes.


That leads to another problem, which is pension liabilities accounting for a greater proportion of company’s sales. 

Table 4: - Pension’s Liabilities as % of Sales 


Tesco saw the biggest increase in their pension liabilities and is second behind Sainsbury.

Tesco saw pension liabilities increased by 24% percentage points, compared with Morrison’s 10.8% and Sainsbury’s 14%.

You would think a growing pension liabilities lead to higher pension deficits. This isn’t the case for Sainsbury and Morrisons, but I’m no actuarial. So, a further investigation is needed.  


Operating Lease

In the past, Tesco is guilty of using sales and leaseback to book non-core profits. That quick fix to boost EPS, and not focusing on core business has cost them a lot of money in wasted investment. Now they are deleveraging through disposals.

On the other hand, Morrisons been engaging in sales and leaseback that resulted in £500m of property sales in the past. 


Despite the size of Tesco’s operating lease its net rental expense as % of sales have fallen below that of Sainsbury. At 1.87%, it is lower than Sainsbury’s 2.49%, while Morrisons rents account for 0.7%. 


A look at total operating lease against sales gives the reason why Sainsbury pays more in rent.  

Table 5: - Operating Leases 


Sainsbury’s operating lease accounts for 40% of sales making it the highest, but they operated at this level for a while.

The deleveraging of leasing is apparent in Tesco, as it saw operating lease account for 22% of sales, having peaked at 27% in 2012.

Despite, seeing low operating lease from Morrisons, theirs have increased from 4-5% to 15%. That is alarming, but unsurprising as bosses choose the easy route to realise value.


Given the low levels of rental expenses, does this pose a threat to companies’ distribution of earnings? Apparently, it does, if we use the fixed charge coverage ratio.

The coverage from earnings has all but collapsed. And it has affected their ability to pay dividends with Tesco cancelling them altogether. Both Morrisons and Sainsbury saw some big dividends reduction. 


Cumulative Free Cash Flow

Free cash flow is an important indicator of a competitive business it is also volatile, which depends on the levels of capex spending.

The solution is to cumulate all cash inflows and cash outflows over a period of time to work out the resultant free cash flow. This method would smooth out some volatilities and give an accurate reading. 


This makes for some interesting reading.

Overall, Morrisons is likely to convert post-tax earnings into free cash flow at an average rate of 37.73%. This means it produces an average free cash flow of £200m per annum enough to pay their annual dividend, which average £196m.

Sainsbury registers a negative free cash flow of £319m.

Tesco has registered cumulative free cash flow of £3.2bn, equivalent to 11% of free cash flow. Like I said before, it depends on capex spending and for Tesco, they saved £5bn in two years!


Supermarket’s Valuations

Companies with huge debts and a pension deficit require a conservative numerator. Normally, I would use Enterprise Value, but I will adjust the EV to include receivables, payables and pension deficits. (Known as Adjusted-EV)


Using five widely used measurements, we get this: - 


Sainsbury is the cheapest company when compared to their 10-year average. Also, Sainsbury has a much lower valuation overall.

However, these valuations are very volatile and the numbers are inconsistent given the growing threat from new competition.

But, most importantly, these basic valuations can’t tell you if the shares are a buy or sell!


One other method is to use the Earnings Power Value.


Earnings Power Value/ Cash Earnings Power Value

The logic behind earnings power of a company is to look at the profits of a business over a long period of time and then estimating what the average profits would be when taking into account all likely business conditions.

To see how I calculate Earnings Power Value (EPV) and to learn more, read this article by Phil Oakley.


For those sceptical about accounting earnings, I also include the use of after-cash tax operating cash flow measure.


The general rule is to buy shares when (EPV) per share is above 100% of current share price because the market is discounting the fundamentals. And like every valuation tool it fails to recognise external threats and internal failings. 

Another issue is choosing the right interest rate, this lead to Phil Oakley’s guide to choosing interest rate.


  • Large and less risky companies (FTSE 350) - 7% to 9%
  • Smaller and more risky (lots of debt or volatile profits) - 10 to 12%
  • Very small and very risky - 15% or more


(P.S. The higher the interest rate chosen, the lower the Earnings Power per share.)


For this exercise, I have chosen to use three interest rates of 9%, 10% and 11%.

(N.B.: My focused analysis is interest rate at 9% unless stated)

First up Sainsbury’s


On an earnings power value basis, Sainsbury valuation was very expensive ten-year ago, when it had a 75% premium. One reason was Qatar’s sovereign fund wanted to buy the whole supermarket for £12bn.

As that didn’t materialise, the shares took a tumble and trade around £3, cutting the premium by half.

A ten-year trend sees EPV per share averages £2.19 with the current price at £2.06. That is lower than the current share price of £2.45 or a 16% premium, although this is lower than the average premium of 29%.


Using the cash earnings power value, the opposite is true. Even at a higher interest rate of 11%, it trades at a discount of 10% to 20%.

On a 10-year basis, it trades at an average 49% discount, but it currently trades at a premium.

 Next up is Morrisons


For Morrisons, it is trading at a premium of 34% but fundamentals are improving.

But, the cash earnings power value suggest value as the current share price gives it an 86% discount, compared with the ten-year average of 33%. Some of that is attributable to Morrisons delaying cash payment to shareholders to boost cash earnings. (Refer back: Cash Cycle)


Finally, we move onto Tesco. 


Despite seeing a 70% share price collapse, the EPV per share decline is greater and currently stands at 65 pence per share, a 63% premium and higher than their ten-year average of 30%.

Even shocking is if you require an 11% interest rate, due to risk this cuts EPV per share by half to 30 pence and makes the current price even more expensive.

Right now, the earnings power value is telling you to stay away from Tesco’s share price as it is fundamentally weak.


Which supermarket should you invest in?

None of the above.

That’s because all three companies have their separate issues.

You can make the case for and against each company, here is a summary below: -


Solid Earnings;

Normal cash cycle;



Assets are perfectly valued, no revaluation gains;

Growing operating lease;

Higher rental expense as % of sales;

Negative cumulative free cash flow since 2006;

Low fixed interest charges.


The case FOR MORRISONS are: -

Improving earnings; some of this is from increasing use of sales and leaseback;  

Growing staff productivity;

Low rental charges;

Low operating lease, but this is growing.


Shareholders’ Equity looks overvalued because of no change in the net book value of fixtures and equipment, despite writing off £1.5bn of original costs;

Average payables period is at their highest of 50 days, whereas Tesco and Sainsbury are below 40 days, helping to boost cash earnings;


The case FOR TESCO are: -

Potential future accounting profits, due to kitchen-sinking their assets;

Some improvements in debt deleveraging;

Operating lease has peaked and is now declining;


The case AGAINST TESCO are: -

Still, highly-leveraged when measuring debt against normalised earnings;

Growing pension deficits;

Loss of reputation following the accounting scandal;

Fixed Interest coverage is the weakest;

Earnings power value per share is 65 pence per share compared to current share price of £1.73 giving it a 63% premium.



The Shrinking Market Share will keep on Shrinking

Earlier in this post, I mentioned both Lidl and Aldi controlling up to 11.9% from 4.6% in 2006. That market share growth is at an annual pace of 10% for Aldi and 8.4% for Lidl.

What if this continues for another 10 years?

How will this affect UK supermarkets?

Achieving the same growth rate looks unlikely, so I will lower the growth rate. Instead, there are three growth rate scenarios.  

Here are the results: - 


If we choose the lowest market share growth rate of 6% for Aldi and 5%for Lidl, then the combined market share at the end of 2027 will come to 20.9% another 9% increase and also higher than the 7.3%!  

At the high-end (Aldi grows at 8% and Lidl at 7%), it gives a combined market share of 24.7%, a 12.8% increase.

What does this mean?

Aldi and Lidl will take more of the pie and causes more miserably for the rest of the supermarkets.

It will add further pressure for cost savings. 


Amazon Fresh

To add further headaches there is another threat brewing, that is Amazon launching their Amazon Fresh in the UK and selling food online. The one area where supermarkets are seeing double-digit growth is being targeted by a company that has millions of UK customers.

Another thing, the recent purchase of Whole Foods show the company intends to enter the bricks and mortar space too.

If there is one company that would benefit from Amazon it is Morrisons because they have a partnership to supply groceries. With speculation of a takeover from Amazon growing.

However, the rise in Morrisons share price has priced in some of that takeover value.  


Final Thoughts

Unless there is a law limiting foreign ownership of the UK grocery market, then this isn’t good for Tesco, Sainsbury, Morrisons and Asda.

If Lidl and Aldi gain a further 9% to 13% in the next decade, you will greater falls in market share from the big four. Cause and Effect!!

So, it is not surprising that both Sainsbury’s and Tesco are moving away from their core business to venture into non-foods and wholesaling. However, this is no means a successful move, especially Sainsbury buying Argos (fierce competition from Amazon).  


For those long-term shareholders, it is still an avoid for the big UK supermarket stocks. 


The opinions expressed by the writer is for entertainment and research purposes. It does not constitute professional investment advice. Data is correct on available information at the time.

Finally, the writer does not own the company’s stock, unless stated otherwise.


By reading my articles and newsletters, you agree to use the research of at your risk. The purpose of this site is to educate and entertain readers. In no way, we are giving investment advice though the information provided is to my knowledge accurate at the time of the report. You should do your research, or seek advice from qualified professional investment advisors.

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J Sainsbury plc is engaged in grocery-related retailing and retail banking. The Company's segments include Retailing; Financial services, and Property investments. The Retailing segment is engaged in the operation of supermarkets and convenience. The Financial services segment includes the operations of Sainsbury's Bank plc (Sainsbury's Bank). The Property investments segment includes the Company's joint ventures with the British Land Company PLC and Land Securities Group PLC. The Company has approximately 2,000 food suppliers and over 1,000 non-food suppliers. The Company offers over 15,000 own-brand products and has approximately 770 convenience stores. The Company offers groceries under various categories, such as fruit and veg, meat and fish, dairy, chilled, bakery, frozen, food cupboard, drinks, health and beauty, baby, household, pet and home. Sainsbury's Bank provides a range of products, including insurances, credit cards, savings and loans. more »

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Tesco PLC (Tesco) is a retail company. The Company is engaged in the business of Retailing and associated activities (Retail) and Retail banking and insurance services. The Company's segments include UK & ROI, which includes the United Kingdom and Republic of Ireland; International, which includes Czech Republic, Hungary, Poland, Slovakia, Malaysia and Thailand, and Tesco Bank, which includes retail banking and insurance services through Tesco Bank in the United Kingdom. The Company's businesses include Tesco UK, Tesco in India, Tesco Malaysia, Tesco Lotus, Tesco Czech Republic, Tesco Hungary, Tesco Ireland, Tesco Poland, Tesco Slovakia, Tesco in China, Tesco Bank and dunnhumby. The Company's brands include Finest, Everyday Value, Chokablok and Technika. Finest and Everyday Value are the two food brands in the United Kingdom. The Company offers a range of personal banking products, principally mortgages, credit cards, personal loans and savings. more »

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Wm Morrison Supermarkets PLC is engaged in the operation of retail supermarket stores under the Morrisons brand and associated activities. The Company offers products, such as Free From, World Foods, Food To Go and Nutmeg clothing. It has food manufacturing capabilities in meat, fish, bakery, fruit and veg, deli and flowers. Its Morrisons branded beef, lamb, pork, chicken, milk and eggs are sourced in the United Kingdom. The Company serves customers across the United Kingdom through approximately 500 stores and an online home delivery service. It operates from over 10 manufacturing sites across Britain. The Company operates over seven regional distribution centers and a national center servicing its supermarkets. Its subsidiaries include Bos Brothers Fruit and Vegetables B.V., Erith Pier Company Limited, Firsdell Limited, Kiddicare Properties Limited, MHE JV Co Limited, Neerock Farming Limited, Neerock Limited, Rathbone Kear Limited and Wm Morrison Produce Limited. more »

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  Is J Sainsbury fundamentally strong or weak? Find out More »

9 Posts on this Thread show/hide all

dfs12 19th Jul '17 1 of 9

Amazing amounts of detail. Brilliant work. As a recent buyer of J Sainsbury (LON:SBRY) I view things slightly differently.

Clearly there are challenges and the sector has been under pressure for some time due to low inflation (among other well documented issues). But unlike the forensic analysis above, my broad view of the financials is that J Sainsbury (LON:SBRY) is in a reasonable position (if you look at the Stockopedia Valuation and Quality metrics you can see what I mean). So if you accept that financially they're fine, I become more interested in what is likely to happen going forwards.

Going forwards I see many areas of J Sainsbury (LON:SBRY) that are very positive. I have gleaned this from the recent trading update and webcast transcript. If you want to see the associated numbers I suggest that you visit the corporate section of the J Sainsbury (LON:SBRY) website:

Argos is doing brilliantly. Fast track is growing at a terrific pace and is coping with peak demands admirably. If it was viewed in isolation many people would get excited with it as an online retailer.

Clothing is already very significant and growing. Again looked at in isolation this would be viewed very favourably by investors and command a PE premium.

Cost savings within the core business and synergy savings of the Argos deal are ahead of schedule.

Argos sales are getting an uplift where they are relocated into a J Sainsbury (LON:SBRY) store and J Sainsbury (LON:SBRY) sales are getting an uplift from Argos customers.

The bank has grown significantly and there has been significant investment in infrastructure to allow J Sainsbury (LON:SBRY) to be in a position to provide mortgages.

Food is actually beginning to do OK!

Of course as all this info is in a trading update none of this positive news is factored into the metrics. This will only happen once interim results are issued (or brokers start adjusting estimates of earnings - which I would expect to start improving very soon).

I view J Sainsbury (LON:SBRY) purchase of Argos as a very positive move. Yes it puts them into competition with Amazon - but all retailers are in competition with Amazon. Either you square up and make a fight of it or you surrender. Historically it is the retailers that bury their head in the sand and carry on regardless that struggle - not the ones that embrace changes to the market. Think of Woolworths (did they even have a website?), HMV and Waterstones who were so stuck in the mud and entrenched in their view that the high street was the only place to be that I think they outsourced their websites to Amazon and sold Kindles in the high street book stores! Blockbuster videos renting out films long after people were switching to downloads... the list goes on and on.

It's possible that many investors are stuck in the mindset that all supermarkets are icons of the past, and are going to struggle endlessly going forwards. Based on the last few years this seems logical, but the most recent positive developments at J Sainsbury (LON:SBRY) are going totally unnoticed. I think that is a mistake.

All in my humble opinion and I hope I don't have a red face in a couple of years when I re-read this comment!

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aflash 20th Jul '17 2 of 9

Thorough analysis and spirited comment!

There is also the Technical Analysis and Trading side. Had one caught MRW (Morisons) and TSCO (Tesco) at the Jan 2016 LO, the subsequent move was profitable. Now difficult to call.

SBRY (Sainsbury), however has moved in a channel since Oct 2014.
Buy at 222p, Sell at 280p.
At least 7 LO touching points and more than 10 HIs.
This is a note to myself as I hold.

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dfs12 21st Jul '17 3 of 9

In reply to aflash, post #2

I agree that the technical indicators look promising on J Sainsbury (LON:SBRY).

A correction to my comment above... I said few were recognising the good things happening at J Sainsbury (LON:SBRY). That's not exactly true. One group has... the shorters! In Dec 2014 J Sainsbury (LON:SBRY) was one of the most shorted companies on the FTSE with total short positions of 12.5%. However, since then (and particularly more recently) almost all shorters have been changing tack and the short position now stands at 6.4%. Still plenty - but the sentiment in the shorting community has clearly changed.

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oscar247 7th Aug '17 4 of 9

Hi, Orangetree

A comprehensive well researched piece of work. Many thanks!

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edwinlefever 3rd Sep '17 5 of 9

Great analysis. The long term future for the large supermarkets looks bleak.

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jonesj 3rd Sep '17 6 of 9

My nearest large supermarket is a Tesco & I used to do almost 100% of my grocery shopping there.

However, they have never managed to have consistently short queues and sometimes there are gaps on the shelves, so I cannot buy my preferred product. When I ask the management to open more tills to reduce queues, they don't seem to care, but if I offload my shopping onto an unstaffed till next to the supervisors pitch, they always manage to open it before I am finished.  Overall, the store is a disgrace.

Due to their slack attitude, I have gone from 100% Tesco to visiting Sainsburys or Tesco 1 week & Lidl the other. Going to Lidl saves a fortune.
It also saves time going around the store, as it's smaller and the productivity of the staff must be about double that of the lazy plodders at Tesco or Sainsburys, so less time in the queue.   That must be a cost advantage.

If it were quoted, Lidl would be the more interesting stock.    The big 3 would have to be very cheap to tempt me in.

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Fegger 4th Sep '17 7 of 9

The concern I have re all retail stocks and similar large employers of low waged staff is the high percentage who have to claim benefits. I can only see the government trying to shift more and more of this cost onto the employers. They have already started to do this with the minimum wage increases. It can't sit right with them that they hugely subsidise these companies staff costs while the companies make large profits. And with Tesco Sainsburys and Morrisins these are very in your face

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Firestarter 5th Sep '17 8 of 9

Re J Sainsbury the change in sentiment of the shorters is significant. There is also a reasonable and fairly consistent dividend for income seekers. I have held the share for a couple of years and believe I will see improvement in the SP over the next couple of years. I am happy to wait and take the dividend in the meantime.

I work close to both a Sainsbury and Aldi and I don't bother going in the Aldi anymore as they have long queues and no self-service (quick) checkouts - unlike the Sainsbury next door. As I value my time more than the 50p I may save on a few items, I exclusively shop at Sainsbury now. I believe the tide will eventually turn and the discounters (Lidl, Aldi) will begin to lose their appeal.

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Orangetree 7th Sep '17 9 of 9

What are the chances that Amazon Fresh could disrupt the UK grocery sector? I, for one, think Ocado would be seriously impacted. But if Amazon bought Morrison and start slashing prices left and right (like it did with Whole Foods). Despite being a losing strategy, that is a bigger threat than the discounters because they already have a trusted brand and a customer base in the UK.

Blog: Walbrock Research
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