One of my resolutions for 2014 is to seek out good risk/reward value among Britain’s larger companies. In this context, I am looking for companies that offer a good strategic investment where there is a decent chance that the total return over 3-5 years will outperform the wider market. In short, companies that can deliver growth AND income at a reasonable price.

J Sainsbury (LON:SBRY) is an interesting prospect. It has six areas of business; stores (supermarkets and convenience stores), online groceries, property, banking, energy and entertainment. The property business involves joint ventures with Land Securities and British Land with the portfolio currently having a market value of around £11.5bn. Sainsbury’s Bank is now 100% owned by the group having bought out the stake of Lloyds Banking Group during 2013. Store space has increased by the equivalent of 1 million square feet in the past year and the other three areas are also growing.

There is plenty of scope for SBRY to continue growing in each of their business areas and I would judge that property and banking in particular, are at an interesting stage of their respective market cycles.

The current and prospective metrics* are also quite compelling:

  • Share Price 366p
  • Market capitalisation of £7.06bn
  • Enterprise Value of £9.29bn
  • Revenue £23.83bn (forecasted to rise to £24.33bn year-on-year) 
  • Debt to Equity Ratio of 48% Price to Earnings Ratio of 12.7 (falling to 11.5 in 2014 according to broker forecasts)
  • Dividend Yield of 4.5% (rising to 4.71% in 2014 according to broker forecasts)

 

For good measure, SBRY qualifies for 4 of Stockopedia’s pre-defined stock screens: James O’Shaugnessy’s Cornerstone Value Strategy, Large Cap Dividend Attraction Strategy, Winning Growth & Income Strategy, Quality Income Strategy.

This pretty much sums up my view on SBRY as being a reliable income investment that offers interesting growth prospects. While it is primarily viewed as a retailer, offering decent comparable value, the most exciting growth could come from the property portfolio and the fully owned bank. I will continue to watch SBRY as the year unfolds.

* Metrics and screening strategies sourced from Stockopedia.

Disclosure – I do not currently own shares in SBRY.

 

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