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Sainsbury 8217 s slashes costs but review uncovers no shocks

Article By: ,  Financial Analyst
November 12, 2014 8:49 AM

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Sainsbury’s said it will slash spending, including share holder pay-outs as it announced the results of a wide-ranging strategic review and continuing falls in profits for the half year.

But with a raft of measures aimed at returning the UK’s third-largest supermarket in terms of market share around, and H1 profit turning out not to have fallen as sharply as expected, investors are likely to applaud  this update overall, after Sainsbury’s stock gained 5.6% on Tuesday.

Additionally, the review during which Sainsbury’s CEO, Mike Coup, pledged to leave “no stone unturned” when he announced it just over a month ago, has not upturned any negative surprises, like the overstated profits discovered by Tesco a few months ago.

Sainsbury’s profit before tax and one off items was £375m for the six months to 27th September, topping analysts’ expectations of about £350m, but down from £400m in the same period last year.

The interim dividend is being kept the same as for the same period a year ago, 5p per share.

But the supermarket has signalled potential cuts to the dividend, by announcing a change in dividend policy to maintain coverage at a level of 2 times underlying earnings, rather than 1.5 times before.

So far the stock reaction appears indecisive.

Having opened strongly, with a gain well over 3.5%, the stock has slipped a little into the red.

There are fairly clear nearby points overhead at which the market may like to pause, with the stock having failed or pivoted at these levels (marked on the chart below) recently.

Unless the market finds sufficient momentum to at least reach them, despite what appears to be a reasonably positive update from Sainsbury’s, profit-taking could set in.

(This item will be updated later in the morning with a full assessment of Sainsbury’s results and strategic review).

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