"Volatility returned to equity markets with a bang this year. After making a record high in January, the @GB:UKX:FTSE 100 had lost over 900 points before the end of March amid concerns around US trade tariffs, rising bond yields, the ..."
Bill - "Getting margins up from 2% to 3% - maybe even (gasp!) 3.5% - would be a big deal indeed in terms of shareholder returns, and you don't have to look too hard at the huge (combined) cost base to work out how, and in how many ways, they might do it."
And you don't have to look too far back to see that they did just that.
"Getting margins up from 2% to 3% - maybe even (gasp!) 3.5% - would be a big deal indeed in terms of shareholder returns"
It's possible but they will have to execute on it and it might not start for another 12-18 months -- what will happen to the SBRY share price when the market gets bored waiting - hard to say really -- in the meantime they are still losing a bit more market share.
"If the Govt had half a brain (they haven't got even that between them!) a great bargaining chip, or else juicy tarrifs - that would help our lot!"
Norman - you summed it up m8 -- if the government had half a brain they wouldn't allow Teresa May to be in the position she is in and for the Lords to completely compromise the UK's now wasted opportunity to get Brexit clean and free of interference.
If the UK end up as a Vassal state our economy will hollow out badly longer term. This isn't about trade changing in the next few years, it's about trade strength and control over many decades.
I doubt though that we will end up with a tit for tat trade barrier issue, as the EU has far too much to lose -- any attempt to block imports and the German car industry will have Merkel bound and gagged so tight she won't know what's hit her. They are very very worried about this right now and they are really scared of the way Barnier is leading the dance. 20% of all German car exports within the EU come to the UK -- that's massive. They are already seeing the middle ground car market hollowed out by Kia, Hyundai and the new Chinese offerings - all at lower cost, equal quality and 7 year or so warranties.
We only have a few brains in government, sadly they are not calling the shots - YET!
Bill and others in SBRY MRW MKS etc. I haven't heard it mentioned yet anywhere, but this Brexit thing. Isn't it just possible that it will throw a great spanner in the works of Lidl & Aldi. Stealing custom from British companies and exprting the profits to Germany.
If the Govt had half a brain (they haven't got even that between them!) a great bargaining chip, or else juicy tarrifs - that would help our lot!
"Ahh but Bill, is this as good as it gets for Mr Moribund who's in the money at the moment?... do we seriously believe this will ever reach a higher P/E than the 16.2 it stands at as I type (314/19.28)? with operating margins at 2%... This does look like a reasonable exit point doesn't it?"
It's a fair and important question, Games... and the answer is - possibly! I long saw large-scale M&A as inevitable here and one key reason for holding on in there, so you could say it's a "travel and arrive" story - at least for SBRY, though maybe not MRW which must now be in the frame for something and/or somebody.
You are right on the P/E, up to a point - these stocks will never be 'high P/E' plays (on a mature earnings basis). But as I've argued before, ad nauseam, I think the margin story has some way to run, at least potentially... anyone thinking that 2% is the end of the story simply doesn't get how operating leverage works in a low-margin, high fixed cost, huge recurring revenues business profile.
Of course this merger is all about cost cutting, as someone else opined, one way or another... but that doesn't make it a bad deal, necessarily. Getting margins up from 2% to 3% - maybe even (gasp!) 3.5% - would be a big deal indeed in terms of shareholder returns, and you don't have to look too hard at the huge (combined) cost base to work out how, and in how many ways, they might do it.
I think most people will probably be endeared to him by this. Based on yesterdays share performance he is in the money. What's the harm in singing about it.
When he started I will be honest I thought he looked a little odd and very boring. I still think he is a little odd, but he is certainly not boring. Is this a case of him going too far to shrug off his boring man image?
I'm still not really sure what Argos purchase benefit was for Sainsburys (look at EPS impact since the deal, will take incredible performance to make up for dilution).
With the Asda deal I think implementation will be tough, but long term the deal is a winner imho. Don't let anybody tell you the supermarket is dying, it's not, in 50 years people will still be buying their groceries.
"Confirmation that the death of the high street is exaggerated. "
Is it the case with the supers though sound? As most of the volume outlets at Sainsbury and certainly Asda, are not on the high street.
I agree this is one massive cost cutting exercise, dressed up to the public as "not a cost cutting exercise" to the small shareholder, the customer and the regulatory chaps while the deal gets approval.
It's still below the price I sold out at yonks ago, but have some residual shares in a friends portfolio I might just get shot of at this juncture.
I know this was mentioned yeasterday. But it REALLY IS FUNNY::
The boss of Sainsbury's, Mike Coupe, has apologised after being caught on camera singing "We're in the money".
He was filmed singing the words to the show tune as he was waiting to be interviewed for ITV News.
It was one of a round of dozens of interviews to explain details of the planned tie up with Asda, the company's biggest deal to date.
Mr Coupe said: "It was an unfortunate choice of song" and apologised if he had offended anybody.
The song is from the musical 42nd Street, which Mr Coupe said he had seen last year.
He busked some lines from it: "We're in the money, the sky is sunny, let's lend it, spent it, send it rolling along", while sitting waiting to be interviewed.
Mr Coupe, a keen guitarist who has played in front of thousands of Sainsbury's employees on occasion, issued a statement after the incident became public.
"This was an unguarded moment trying to compose myself before a TV interview," he said.
"It was an unfortunate choice of song, from the musical 42nd Street which I saw last year and I apologise if I have offended anyone."
I really don't like this deal one little bit! This sector has so much competition from Aldi and Lidl it is a relief to get out. Sainsbury's always had good property assets (an insurance just in case things went really bad), the dividend cover also being healthy.
Good luck to the remainer's, let's see how this pans out over the long term.
"I don't think, for a minute, that this ends here."
How true. As far as this proposed merger is concerned, as of now we have just heard window dressing.
10% price cuts, don't believe it. Asda and Sainsbury already have buying power. Two proposed head offices, that wont stick. No store closures, rubbish. The reason in part is because there is to much space in the sector. Redundancies you bet.
Make no bones about it there will be asset stripping or enhancing depending on your point of view. Some on here are squeamish about such naked capitalism. Will be interesting to see how it is dressed up.
This is defensive so let's see it for what it is. Success will be measured by hanging onto market share and positioning for the threat of Amazon.
This will force change, others will have to respond. Confirmation that the death of the high street is exaggerated. It will just be different with niche players riding through it.
"... you have said it yourself, you can't see... You could end up misreading this like you did with the Melrose/ GKN takeover with spurious arguments that don't add up... Try also to avoid musleading obscure figures in your arguments. As you know you have form."
Spot on SM... merely an excuse for NB to post yet another SELL recommendation - if only he ever owned any stocks in the first place. Maybe he hasn't had one for a while (so to speak?)
Only summary thoughts from me, owing to distractions elsewhere. But I agree with what seems a few others on here - Argos looks like the (hidden?) gem of any opportunity here, however many stores they have to divest (not many, I suspect).
I've been saying for a while (as others will hopefully remember) that M&A is the inevitable end-game in UK grocery - and so it begins. I always thought a SBRY/MRW would be the most logical deal - and you can be sure they thought about it, most likely discussed it. Maybe the cultural and family legacies were still too strong to set aside?
I don't think, for a minute, that this ends here... maybe Amazon going for MRW? MRW having a pop at the Co-op? The JL partners putting Waitrose on the block? Possibly the M&S angle, as per SM (though I think this less likely). Whatever and whichever... we appear to live in interesting times in this previously moribund sector!
I've been saddled with Sainsbury's since the Homebase/Argos buyout, not great divis and wondering if the SP will ever recover. As well as the operational cost-savings of a combined group, there is maybe a great opportunity to short-cut the development of US and other supply chains with Walmart as a partner. It takes a long time to set up profitable purchasing deals and maybe Sainsbury's are looking to the post-Brexit trading landscape.
The easiest way of thinking about this complex merger, is by analagy with two good restaurants at different ends of the market joining forces under pressure from competition.
- Not to simply amalgamate into one bigger restaurant, but rather to create a Food court where the two restaurants sharing their tables and both gain.... One restaurant could use most tables at lunchtime, reducing queues and keeping customers who wouldn't queue, which they might have lost to nearby restaurants. Similarly, the second restaurant uses most tables in the evening to accomodate its extra customers and gets a similar benefit.
In this way the two good, but quite different, restaurants can join forces to fight off the others, by working together to get more market share from the restaurants nearby.
"Mike Coupe had big boots to fill when he took over from LSE:SBRY:Sainsbury's hero Justin King nearly four years ago, but the supermarket's chief grocer has already established a significant legacy and reputation for bold M&A.Less than two years ..."
1. Walmark buying power if they remain large shareholder (20-40%)
2. Two brands - ASDA can compete with Aldi_Lid; unlikely to steal customers from Sains. Sains can maintain its premium pricing .
3. Argos into Asda - more customers. Perhaps expand into electricals?
4. Cost reductions from synergies, especially home delivery?
5. Walmark and others must worry about Amazon expansion into food, so I can see this as the supermarket online fight back?
6. Opportunity to rejig the store numbers/places with the inevitable Competition concerns.
Trans-formative change and hats of to both CEO's to get this positioned. Execution may be tricky, and agree Morrison probably will pick up some stores on the cheap?
The Sainsbury-Asda merger looks a great deal but what are the catches and who will lose out? The re-investment into price is bound to impact on Tesco. Tesco already price matches against Asda and Sainsbury so cuts of 10% in grocery prices will also have to be reflected in price reductions of up to the same amount at Tesco. Suppliers will lose out - Unilever, P&G, Premier Foods down to individual farm suppliers as bigger discounts are sought. The head office staff at Asda will see their roles disappear. Not obvious but this is very bad news for the Waitrose of the North, Booths. Already struggling and up for sale, the prospect of Sainsbury cutting its prices by up to 10% could accelerate the sale process and cut the value of the business dramatically. Even M&S may see the growth of its Simply Food stores stalling if Sainsbury becomes noticeably cheaper. Morrisons are likely to benefit from picking up some of the stores that have to be sold to enable the merger to proceed but they too will feel the chill from lower prices especially at Asda. I also think if the CMA says a new entrant into the UK food retailing market is essential, Carrefour may be tempted to return to the UK if the package of stores is attractive enough. Many of the stores are similar to the Eroski supermarkets in Spain it bought a year ago. Even if Carrefour aren't interested there are other supermarket operators like Auchan who might regard picking up stores in the UK at a knock-down price as a once in a lifetime opportunity.
The good news for Sainsbury shareholders is all the above won't bother the CMA too much as they will see it as promoting competition and benefiting the consumer.
What really strikes me about this merger is the opportunities for Argos within the combined group, and, perhaps, opportunities to expand the brand even further, especially with Walmart now having an interest.
Amazon is encroaching on supermarket territory, but in doing so they have created a competitor. At the moment, Argos are a competitor only in the UK, but watch this space, I'd say.
Wonder what's happening to Tesco today - must check.
I have to say the merger plan has been very well presented. Of course the CMA will get involved. They stick their noses into almost every deal these days and refer deals to phase 2 for the most ridiculous of reasons. However that said, on the face of it there isn't a clear reason why this deal wouldn't benefit the customers of either store.
The key point which they daren't say in public but in private will be arguing with the CMA is the different demographics of Asda's and Sainsbury's customers. I live in an area which is prime Waitrose territory. You wouldn't know unless you were told that Asda, or for that matter Aldi, Lidl or pound shops existed. Just look at where Asda stores are located in London - traditional working class areas with the lowest house prices. The distinction is less stark as you move North in the country but generally you can say Sainsbury targets middle class shoppers and Asda the working classes with less money to spend.
I don't hold shares in big companies like Sainsbury but I think the proposed merger is logical and has been well thought out. The CMA will look at the competitive effect in every location where either company has a store. They will find situations where there could be local losses of customer choice and will enforce store disposals to the competition - maybe even to a new foreign entrant like Carrefour. It is what the CMA sees as its job but I can see this merger eventually being cleared. It's not quite Harrods merging with Poundland and keeping the two brands separate but basically that is how the proposal is going to be presented to the CMA.
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