Sainsbury’s Argos Integration Not Enough to Alleviate Competitive Pressures; Shares Slightly Ahead
After revisiting our assumptions and updating our model to account for fiscal 2017 results, we have reduced our fair value estimate for Sainsbury’s to GBX 231 from GBX 317. Our estimate implies a forward fiscal 2019 price/earnings ratio of 13 times and enterprise value/EBITDA ratio of 5 times. We reaffirm our no-moat rating on the back of a challenging U.K. food retail market. We now expect 1.2% average retail sales growth and a 2.3% average retail operating margin over the next five years, vers...J Sainsbury is principally engaged in food, general merchandise and clothing retailing and financial services. Co. is organized into four operating segments: Retail (Food), which provides a range of food, including organic produce; Retail (General Merchandise and Clothing), which provides a range of products across home, clothing, technology and leisure; Financial Services (Sainsbury's Bank plc and Argos Financial Services entities), which provides products such as credit cards, insurance, travel money and personal loans; and Property Investment (The British Land Company PLC and Land Securities Group PLC joint ventures). At Mar 11 2017, Co. had 605 supermarkets and 806 convenience stores.
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