Somerfield could be closing the gap with supermarket leaders

STOCK MARKET WEEK

Supermarkets dominate the stock market's profit check-outs this week. Tesco and J Sainsbury are set to serve up trading statements and Budgens and Somerfield will declare their interim profit figures.

It's quite an event for Somerfield: the first offering to the market since its controversial and cut-price flotation last summer.

Twice the share sale price was lowered. To begin with the supermarket chain was thinking in terms of 190p a share. Then it seemed to settle for 160p. But no. It had to go to down to 145p, pricing the group at pounds 435m, to get the sale away. Indeed, the sponsoring investment house, Kleinwort Benson, felt obliged to cover any possible legal comeback by offering Somerfield as a trade sale to other retail groups. There were no takers. Still, its ploy demonstrated 145p was the best price it could get.

Except for an uncomfortable dip in November, the shares have held up in some style. At 170.5p on Friday they are just below their peak.

The flotation flop was in part an unwelcomed legacy from Somerfield's colourful past. A collection of second-line supermarket names - Gateway, International and others - it often seemed to lag the rest of the herd. Eventually it fell victim to a highly geared takeover by a specially created vehicle, Isosceles. The idea was to inject new management and the backing bankers hoped to add to their cash piles by floating the business at considerably above the pounds 2.1bn they splashed out.

But the best laid plans of bankers and men have a habit of failing miserably. The retailing operation was weakened by the sale of 70 superstores for pounds 700m to reduce debt. Even so, the remaining debt burden proved too onerous and to make matters worse the policies introduced by the new management failed to produce the expected returns.

Four years ago David Simons was recruited from Storehouse, where he was finance director, to turn things round.

In the year to last April pre-tax profits were pounds 91.8m and the company was in a position to pay pounds 590.8m in dividends to its banking shareholders, who also swallowed most of the flotation proceeds.

Tomorrow the market will discover whether the Simons style is continuing to produce the growth the old Isosceles operation failed so dismally to achieve.

All the signs are that it has - and Somerfield's long haul to narrow the gap between it and its bigger rivals is still on course.

The nation's number five supermarket chain, which has the largest percentage of elderly customers because of its West Country associations, should, believes NatWest Securities, produce interim profits of pounds 54.5m. Analysts Tony MacNeary and Mike Dennis say such a performance, reflecting thicker profit margins, would "demonstrate clearly that the strategy to close the profitability gap against competitors is on track". For the year they expect an out-turn of around pounds 103m.

Beating Somerfield to the profits punch with half-year figures today is Budgens. Although a relative supermarket tiddler, the company once threatened to join the giants - by bidding for the Dee Corporation from which Somerfield evolved.

Its audacious bid failed. And it was a long while before the group, which in previous incarnations could be found as a confectioner and cake maker, recovered from its endeavours.

But it did and despite being a minnow in the domain of giants it has, in a quiet way, prospered. Interim profits should be about pounds 5m up from pounds 4.3m with year's results 16 per cent higher at pounds 9.2m.

Budgens 100-odd outlets have, so far, managed to hold their own against growing competition from superstores. It is in the forefront of the move for grocers to run garage shops, signing a deal with Mobil Oil.

There is also the intriguing position of German retailer Rewe. It has 29.2 per cent of Budgens and could, if it so wished, increase its holding to 45 per cent by converting bonds.

Speculation about Rewe's intention often floats around. After the failure of a joint venture, running shops under the Penny Market banner, the German group expressed its dismay at the way the operation had been handled.

So the market braced itself for bid action. Or at least a share sale by the disillusioned Germans. But two years after abandoning the Penny Market concept they are still on the share register.

To complete a food retailing week, Watson & Philip, the Alldays convenience chain, produces year's figures on Wednesday. They will be the first since Colin Glass, ex-Dixons, became chief executive.

Paul Smiddy at Credit Lyonnais Laing is around the top end of the range, looking for pounds 20.1m against pounds 18.

Mr Glass had the unenviable task of hitting the market with a profit warning just six weeks after he arrived at the Dundee-based group. He said W&P would not reach the market's more optimistic estimates, prompting many analysts to settle around the pounds 20m mark.

The caution was created by expansion costs at W&P's Foodservice catering supplies businesses. A pounds 1.3m charge for closing unwanted depots was another contributory factor.

The Alldays operation, with 530 outlets, has, like Budgens, linked with a petrol giant - in its case Total. It operates from more than 30 Total garages and there are plans for a further 200-250 forecourt shops over the next three years. All told, the ambition is to build a chain of 1,000 Alldays outlets.

Tesco is scheduled to pronounce on its festive trading tomorrow, with Sainsbury checking in on Friday. The other leading supermarketeers, Asda and Safeway, should also give details of their holiday performances either this week or next.

The market believes the food retailers enjoyed good trading in what, so far, has turned out to be a patchy period, with the likes of Body Shop and Sears having disappointing times.

Start your day with The Independent, sign up for daily news emails
PROMOTED VIDEO
ebooks
ebooksA special investigation by Andy McSmith
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

Recruitment Genius: Compliance Assistant

£13000 per annum: Recruitment Genius: This Pension Specialist was established ...

Ashdown Group: Market Research Executive

£23000 - £26000 per annum + Benefits: Ashdown Group: Market Research Executive...

Recruitment Genius: Technical Report Writer

£25000 - £35000 per annum: Recruitment Genius: A Technical Report Writer is re...

MBDA UK Ltd: Indirect Procurement Category Manager

Competitive salary & benefits!: MBDA UK Ltd: MBDA UK LTD Indirect Procurement...

Day In a Page

Isis hostage crisis: Militant group stands strong as its numerous enemies fail to find a common plan to defeat it

Isis stands strong as its numerous enemies fail to find a common plan to defeat it

The jihadis are being squeezed militarily and economically, but there is no sign of an implosion, says Patrick Cockburn
Virtual reality thrusts viewers into the frontline of global events - and puts film-goers at the heart of the action

Virtual reality: Seeing is believing

Virtual reality thrusts viewers into the frontline of global events - and puts film-goers at the heart of the action
Homeless Veterans appeal: MP says Coalition ‘not doing enough’

Homeless Veterans appeal

MP says Coalition ‘not doing enough’ to help
Larry David, Steve Coogan and other comedians share stories of depression in new documentary

Comedians share stories of depression

The director of the new documentary, Kevin Pollak, tells Jessica Barrett how he got them to talk
Has The Archers lost the plot with it's spicy storylines?

Has The Archers lost the plot?

A growing number of listeners are voicing their discontent over the rural soap's spicy storylines; so loudly that even the BBC's director-general seems worried, says Simon Kelner
English Heritage adds 14 post-war office buildings to its protected lists

14 office buildings added to protected lists

Christopher Beanland explores the underrated appeal of these palaces of pen-pushing
Human skull discovery in Israel proves humans lived side-by-side with Neanderthals

Human skull discovery in Israel proves humans lived side-by-side with Neanderthals

Scientists unearthed the cranial fragments from Manot Cave in West Galilee
World War Z author Max Brooks honours WW1's Harlem Hellfighters in new graphic novel

Max Brooks honours Harlem Hellfighters

The author talks about race, legacy and his Will Smith film option to Tim Walker
Why the league system no longer measures up

League system no longer measures up

Jon Coles, former head of standards at the Department of Education, used to be in charge of school performance rankings. He explains how he would reform the system
Valentine's Day cards: 5 best online card shops

Don't leave it to the petrol station: The best online card shops for Valentine's Day

Can't find a card you like on the high street? Try one of these sites for individual, personalised options, whatever your taste
Diego Costa: Devil in blue who upsets defences is a reminder of what Liverpool have lost

Devil in blue Costa is a reminder of what Liverpool have lost

The Reds are desperately missing Luis Suarez, says Ian Herbert
Ashley Giles: 'I'll watch England – but not as a fan'

Ashley Giles: 'I'll watch England – but not as a fan'

Former one-day coach says he will ‘observe’ their World Cup games – but ‘won’t be jumping up and down’
Greece elections: In times like these, the EU has far more dangerous adversaries than Syriza

Greece elections

In times like these, the EU has far more dangerous adversaries than Syriza, says Patrick Cockburn
Holocaust Memorial Day: Nazi victims remembered as spectre of prejudice reappears

Holocaust Memorial Day

Nazi victims remembered as spectre of prejudice reappears over Europe
Fortitude and the Arctic attraction: Our fascination with the last great wilderness

Magnetic north

The Arctic has always exerted a pull, from Greek myth to new thriller Fortitude. Gerard Gilbert considers what's behind our fascination with the last great wilderness