UK's Biggest Supermarkets Buoyed by Sales Growth

The UK’s biggest grocers are enjoying a period of sustained growth, according to industry data from Kantar, but Ocado's results were less well received by investors

James Gard 19 September, 2017 | 1:48PM
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Ocado plastic bags

Ocado’s trading statement to the market, combined with Kantar Worldpanel figures on the supermarket sector, brought the UK’s listed grocers into focus on Tuesday.

The market reacted to Ocado’s (OCDO) third-quarter sales figures by pushing the share price down over 5%, making the company the biggest faller on the FTSE 250. Revenue rose to £344.5 million in the third quarter of this year, from £301.4 million the year before. While average orders surged from 219,000 a week to 254,000, investors focused on the drop in the order value from £107 to £106.

The UK’s biggest grocers are enjoying a period of sustained growth, according to industry data from Kantar, which reports market share and sales on a quarterly basis. In the 12 weeks ending September 10, consumer spending in Britain’s largest supermarkets was up 3.6% on the same period last year.

Shares in the UK’s largest listed retailers reacted positively to the latest figures, which showed that Tesco (TSCO) increased sales by 2.7% year on year, WM Morrison (MRW)’s were up 2.3% and Sainsbury’s (SRBY) were 2.1% higher in mid-morning trading. Morrisons’ shares were the biggest riser on the FTSE 100 on Tuesday morning, gaining 2%, Sainsbury’s shares were up by nearly 2%, while Tesco was 1% higher.

Ocado’s sales were 10% higher than the year before, giving it a market share of 1.4%. Tesco remains the biggest supermarket, with a market share of 27.8%, while Sainsbury’s is still slightly ahead of Wal-Mart-owned (WMT) Asda with a share of 15.7%.

Discount supermarkets Aldi and Lidl saw sales up 16% and 19% respectively, giving the two a combined market share of 12.2%, now bigger than Morrisons, which has a market share of 10.3%.

What the Analysts Say

Tesco is rated a two-star stock by Morningstar equity analysts, meaning that its shares are considered overvalued by Morningstar equity analysts who assign the stock a fair value estimate of 144p a share, against a current market price of 185p.

Sainsbury’s on the other hand is a four-star stock, which means that it is undervalued – with a fair value estimate is 317p, against a current price of 242p.

Morrisons, like Tesco, is rated a two-star stock, with a fair value estimate of 202p, below the current price of 235p.

Morningstar equity analyst Philip Gorman, after Morrisons' latest results last week, maintained the fair value estimate and “no-moat” rating, which means the company has no significant competitive advantage against its rivals.

Gorman said: “The main risks are competitive, given that hard discounters Aldi and Lidl are aggressively opening new stores in the UK and generally offer similar products at much discounted prices.

"However, Morrisons also faces tough competition from Tesco and Asda, with which it most often competes, and both of these chains are very price-competitive. There is also a geographical risk in having all the stores in the U.K. with no international business to offset.”

 

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Securities Mentioned in Article

Security NamePriceChange (%)Morningstar
Rating
Ocado Group PLC353.30 GBX-0.08Rating
Sainsbury (J) PLC262.60 GBX0.69Rating
Tesco PLC308.80 GBX-0.16Rating
Walmart Inc67.60 USD0.27Rating

About Author

James Gard

James Gard  is senior editor for Morningstar.co.uk

 

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