James Moore: Sainsbury’s offers a whiff of promise and investors are following their noses

While sales might have been down at the headline level, that is more or less to be expected at a time of still quite sharp price deflation

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The Independent Online

Sainsbury’s might have reported a 2 per cent fall in sales but its shares were flying off the stock market’s shelves like barbecue food on a hot day.

Investors are getting a sniff of something that’s been hard to detect in the bouquets of any of the players in this embattled sector for quite some time: hope.

While sales might have been down at the headline level, that is more or less to be expected at a time of still quite sharp price deflation, requiring grocers to run ever faster just to stand still.

They were at least a shade better than the City’s consensus forecast, but perhaps just as significant were management’s comments on sales volumes. They’ve been rising across the group for two consecutive quarters. At the like-for-like level – in other words, excluding the contribution made by new stores – I was told that they are more or less flat. But even that is an improvement on what has been the norm for the past couple of years.

There are various other metrics running in Sainsbury’s favour too, and the break-neck growth of discounters Aldi and Lidl has shown signs of moderating of late.

Combined with the fact that real incomes have (at last) been rising and Sainsbury’s is in a rather stronger position than rivals such as Tesco or Morrison’s, and the stock market’s reaction is understandable: in investment the trend is your friend, and the trend is hinting that Sainsbury’s might just have turned the corner.

The operative word being “might”. The food retailing market remains unpredictable and brutally competitive. The discounters are still growing, and even the aforementioned Morrison’s has been showing signs of life.

 

Sainsbury’s isn’t in a bad position to benefit if more money in consumers’ pockets translates into them seeking out pricier products offering better margins. Moreover, parts of the business are growing quite robustly.

But let’s not get ahead of ourselves, as some investors appear to have done. What Sainsbury’s is doing at the moment is holding its own. In the current market that’s still a more-than-creditable performance. Certain of its rivals would be cracking open the special-offer Cava if they could say the same.

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Industrial figures highlight the Chancellor’s problem

In the week of the Mansion House shindig, let’s talk chancellors, economic competence and economic record. Particularly the latter.

The official figures for industrial output have just come out and the headline number was up, by an encouraging amount. But much of the rise was down to oil and gas production. If you strip that out and concentrate on things that are actually produced, a rather different, and less rosy, picture emerges.

Thanks in part to a reduction in drug production the numbers were firmly in the red. Manufacturing output fell by 0.4 per cent. With the UK’s trade balance still in a parlous state, that doesn’t make for particularly happy reading.

This is, of course, just one set of numbers. But it’s more evidence that the very necessary project of rebalancing the economy so it isn’t quite so dependent on financial services is failing to show results.

The TUC is no friend of the Chancellor’s, so criticism from that quarter shouldn’t come as a great surprise. But it does make the very good point that manufacturing output is still below pre-crisis levels.

That crisis was caused by a banking sector to which the Chancellor is preparing to offer an olive branch.

Some might see it as him kow-towing to the very people who got us into the economic mess from which manufacturing is still struggling to recover.

He may well feel that he has to. Yes, the economy is growing, but as a result of his policy failure the UK is now even more in thrall to that industry than it was before it nearly wrecked the economy. So this may not be the last time George Osborne is to be found bowing and scraping at the feet of the City of London.

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 A chance to nip a pension freedom scandal in the bud

The National Association of Pension Funds has added its voice to the growing number who are starting to get very worried about “pension freedom”.

Ostensibly a liberal and much needed reform, given that the annuities people used to have to buy offered such rotten value, it hasn’t taken all that long for the cracks to appear.

Worryingly, it appears the necessary legislation was written on the fly. As a result, regulation is being updated in the same fashion. In the meantime the spivs, the con men and the boiler-room operators have been lining up to relieve soon-to-be-pensioners of their hard-saved cash.

Even the more reputable (well, semi-reputable) parts of the industry are struggling to catch up and the National Association of Pension Funds worries that saver who wish to access their money flexibly may find that they are unable to secure the products or advice they desperately need. At least at a price they want – and can afford – to pay.

There is already the potential here for a scandal, the cost of which could make the payment protection billions look like so much small change.

The NAPF is calling for urgent talks. Perhaps someone in Whitehall should pick up the phone.

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