Investment Column: Squeeze is on for Somerfield
Wednesday 21 January 1998
This was either bid speculation - with the group being identified as a potential merger target in a sector keen on consolidation - or a catch- up process as Somerfield shares had missed out on much of the upgrading in supermarket ratings since the summer.
Whatever prompted the buying spree, it certainly cannot be trading. Somerfield did well to report a 12 per cent increase in underlying profits to pounds 56.9m in the six months to 8 November. But the problem is that the growth all seems to be coming from widening margins. Like-for-like sales growth in the period was just 0.3 per cent and current trading is not much better at 0.6 per cent.
Given that the company said in the summer that its target was sales growth above the industry average this is an under-achievement. Tesco, for example, reported like-for-like growth of 6.5 per cent on Monday against an industry average of 3.3 per cent. With sales virtually stagnant, Somerfield is having to rely on squeezing suppliers to drive margins. They rose from 3.4 per cent to 3.8 per cent on the year.
Management is talking about improving sales with better product availability, refit programmes and an improved product mix. With costs on the up and the tax charge rising, however, this may not be enough. There is some scope to improve the store portfolio with refits but the large sales increases have already been achieved.
A merger is always a possibility though it is difficult to see any of the big UK supermarkets paying 300p a share for a company that was offered to them for 160p by Kleinwort Benson just before the flotation. Assuming full-year profits of pounds 115m, the shares, up 4p to 241.5p yesterday, trade on a forward p/e ratio of 8 and yield almost 5 per cent. Still a substantial discount to the sector but, given the recent strong run, it may be time to lock in some profits.
- 1 Tourist films plane's descent just metres above packed Caribbean beach
- 3 World Book Day: Boy 'excluded' from school after dressing up as Fifty Shades' Christian Grey
- 4 Bad Jews poster 'censored' on London Tube
- 5 Have sex with your iPad thanks to the new sex toy no-one asked for
Tourist films plane's descent just metres above packed Caribbean beach
Indian woman creates 'Marriage CV' after parents put her on dating site: 'Definitely not marriage material. Won’t grow long hair, ever'
Isis 'bulldozes' Nimrud: UNESCO condemns destruction of ancient Assyrian site as a 'war crime'
Professor Brian Cox brands astrology-believing Tory MP David Tredinnick an 'outlier on the spectrum of reason'
Lynch mob kills suspected rapist in India after dragging him naked for four miles through city
Nearly 100,000 of Britain's poorest children go hungry after parents' benefits are cut
Durham Free School: 'Creationism taught at' free school facing closure
End of the licence fee: BBC to back radical overhaul of how it is funded
Elif Shafak: Turkish author warns against rise of British nationalism
Ex-head of MI6: 'We shouldn't kid ourselves that Russia is on a path to democracy'
Most people think legal tax avoidance is just as wrong as illegal tax evasion, poll suggests
iJobs Money & Business
£13000 per annum: Recruitment Genius: This is an exciting opportunity to join ...
£25000 - £30000 per annum + benefits: Ashdown Group: A global leader operating...
£12 - £15 Hourly Rate: Jemma Gent: In this role you will report to the Head of...
£8 per hour: Recruitment Genius: This Pension Specialist was established early...