Hobson: Sainsbury's Results Make Me Angry

THE WEEK: Morningstar columnist Rodney Hobson drags supermarket stock Sainsburys over the coals for failing to own up to bad performance in their recent results

Rodney Hobson 5 May, 2017 | 2:45PM
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Regular readers will know that what really gets my goat is when companies try to bury bad news. They can’t avoid reality altogether because the London Stock Exchange quite rightly insists on inconvenient facts being published but investors can be deceived temporarily by what goes at the top of any announcement.

Those bullet points should give an accurate picture of the state of the company, otherwise investors may rush to buy shares at the market opening then repent at leisure when they read further down to discover the reality.

The latest culprit is supermarket group Sainsbury’s (SBRY), which managed no fewer than eight “highlights” without deigning to mention that profits were down and the dividend had been cut. It’s no consolation to be told that Sainsbury has gained market share if that is not feeding through to a better financial performance.

Underlying profits for the year to March 11 were down just 1% on like-for-like sales 0.6% lower, not a bad performance given the difficulties and increased competition in the supermarket section. Sainsbury decided to make it look as if it had something to hide. No wonder the shares fell over 5% on the news, a pity given that they had clawed their way back to their highest level in nearly 12 months.

What was far worse than the profits, however, was the reduction in the final dividend from 8.1p to 6.6p, a bigger cut than shareholders suffered at half time. To add insult to injury, the fall was blamed on “dilution due to new shares” issued in the Argos takeover.

For heaven’s sake, wasn’t this takeover supposed to add value, not take it away? Argos chipped £77 million into Sainsbury’s profits. It’s the side of the business that is growing. So don’t blame the Argos shareholders, who were probably hoping for something better from the enlarged group.

Perhaps I am angry because I bought shares back in the days when it was the best performing supermarket in the UK and I have kicked myself on several occasions for failing to get out when the tide was so obviously turning. Once again I have missed the opportunity.

Banking Stock Offers Better News

Fortunately the banking sector is offering better news and HSBC (HSBA), another of my holdings, brightened my mood considerably with first quarter results that sent the shares soaring 4% immediately. In this case apparently poor profit figures turned out to be much better than they seemed initially.

Although it understandably put the best gloss on the figures, at least HSBC had the good grace to report the 19% fall in reported profits before the 12% gain in underlying profits. Also, it put the less favourable comparison with the first quarter of 2016 ahead of the strong improvement compared with the last quarter.

The shares had risen strongly from last June to near the end of February before coming off the boil. I’m very happy to hold but I wouldn’t chase the shares higher. Those who have stayed out may have missed the best chance and would do better to look elsewhere at this stage or wait to see if the euphoria fades.

Shell Rewards Shareholders with Dividend

If two thirds of your investments are doing well you are almost certainly succeeding overall, so I’m happy to say that my third major holding among this week’s results, Royal Dutch Shell (RDSB), also came up to scratch.

The quarterly dividend is unchanged at 47 US cents but that will translate into more UK pence because of the fall in the value of the pound. As with HSBC, I’m happy to hold. I have regarded Shell as a better option than BP for the past seven years and still do so.

The information contained within is for educational and informational purposes ONLY. It is not intended nor should it be considered an invitation or inducement to buy or sell a security or securities noted within nor should it be viewed as a communication intended to persuade or incite you to buy or sell security or securities noted within. Any commentary provided is the opinion of the author and should not be considered a personalised recommendation. The information contained within should not be a person's sole basis for making an investment decision. Please contact your financial professional before making an investment decision.

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Securities Mentioned in Article

Security NamePriceChange (%)Morningstar
HSBC Holdings PLC524.30 GBX-0.19Rating
Royal Dutch Shell PLC B  
Sainsbury (J) PLC229.80 GBX-1.08Rating

About Author

Rodney Hobson

Rodney Hobson  is a columnist for Morningstar.co.uk and author of several investing books, including The Dividend Investor and How to Build a Share Portfolio.