Glory days are over at Sainsbury's

City talk
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The Independent Online
WHAT'S wrong with Sainsbury's? Our chart shows the way the shares have performed over the past five years. Clearly, the pattern of uninterrupted growth seems to have faltered. So can the stock stage a recovery? The answer, sadly, is a qualified no. Pundits proclaim a new era of low inflation, which translates at the high-street level into a wave of destocking, as consumers opt for value rather than quality - or so we are told.

Whether this can last is hard to say. But Sainsbury's had built its fortunes on its appeal to quality, and benefited from the higher margins of this strategy. The trouble with this, critics say, is that the group has taken its eye off the main ball - its customers. Good margins, now under pressure, have been at the expense of good customer relations. Sainsbury's management is also under fire for losing ground to its rivals. Tesco, Asda and Argyll have made startling advances in the past few years. In many of its stores, Tesco offers shoppers a more pleasant environment.

Can Sainsbury's fight back? Perhaps, but the problems may need more than just tinkering with; it could require wholesale change to how the group does business, which will take years, not months. So the limits to growth seem to have been reached, and the glory days are over. If you have been a long-term holder, at 391p, now is probably a good time to lock in some profits and wave goodbye to the shares.

GAMES Workshop is the sort of company whose shareholder following could match the devotion of its customers. The latter are addicted, some would say, to Games Workshop's range. Its main product is lead model warriors for complex board games. Fans take days, weeks even, playing out intergalactic battles and planetary conquests. There is also a substantial income from supporting products, like newsletters. Although the group has excellent growth prospects within its current markets, there is a strict limit to how far this can go. After all, not everyone will want to settle down of a weekend with Warhammer. But for now the figures look exciting. Interims last week for the six months to November showed a 31 per cent boost in sales, to pounds 19.5m, with pre-tax profit of pounds 3.16m, up from pounds 2.46m. The shares, at 308p, trade on a price-earnings ratio of 23 - pricey, but worth a punt.

FUND management group Perpetual has been in the spotlight, with the shares romping ahead to 2,185p by Friday, up from 2,040p at the start of the week. But majority owner Martyn Arbib, who between his family and charitable trusts controls 65 per cent of the shares, has said he is not a seller. Of course, everybody has a price, as Arbib, a shrewd operator, would admit.

Perpetual is well up there as one of the most successful fund management groups in the UK, and with outstanding performance by many of its funds, it has earned the admiration of the City and private investors. But a buyer will only want to strike a deal if it can guarantee the existing management stays with the new owner. If a bidder were to emerge, the recent gains have eliminated much in the way of a premium they would be willing to pay. Sell.

THE outbreak of hostilities in Toyland, with the mega-bid battle unleashed by Mattel for Hasbro, has fizzled out. But whatever excitement was generated by the American drama largely passed by shares in toy minnow Cassidy Brothers. Little surprise here, since over the past seven years from the time of its flotation, it has managed to return an average 4 per cent capital appreciation a year. Recent results were nothing to shout about, with pre-tax profits for the six months to November down a touch to pounds 0.50m from pounds 0.52m. Now traded on the Alternative Investment Market, the share, at 68p, is one to avoid.

THERE are numerous uncertainties surrounding the recent news from Airtours that it was in possible negotiations to sell a 30 per cent stake in the company to fellow tour operator Carnival Corporation of the US. A 30 per cent rise in the share price, to 434p, is a signal to bale out. The $6.5bn US company has yet to reveal its plans, but there are some worrying aspects which may not bode well for shareholders in the future. Given that Airtours management already owns 30 per cent of the shares, another 30 per cent held by a friendly shareholder would weaken the position of the ordinary shareholders. Sell.