Somerfield still has problems

The Investment Column

It is hardly surprising that Somerfield laid low for almost six months after what proved to be one of the most fraught new issues of recent times. David Simons and his fellow directors probably limped back to their Bristol headquarters severely bruised after their experience, if several million richer.

The cut price float was such a debacle that it made it all the more crucial that the company did not disappoint with yesterday's maiden set of results as a public company. Mr Simons even started his presentation with a slide showing the slogan "delivering the goods".

This was only partly the case. Though half-year profits of pounds 54.6m were in line with expectations and the margin increase to 3.4 per cent was also good news, the longer-term prospects still look poor.

The most worrying sign is the group's like-for-like sales performance, where sales in the six months to November were just 1.7 per cent ahead of the same period last year. With food price inflation running at just over 2 per cent, that represents a fall in real terms.

The problem is that though management tries to focus attention on the core Somerfield format, where sales were 4.3 per cent ahead, it is still being dragged back by the under-performing tail of old Gateway stores and the Food Giant discount format. Sales are falling off a cliff in both.

Dig beneath the surface and other problems emerge. Though the conversion of Gateway shops to the Somerfield format yields double-digit sales gains in the short term, they soon evaporate. Mr Simons admitted yesterday that in some of the original Somerfield conversions sales have started to go into reverse. For a company that is hoping to drive profits through higher sales that looks extremely worrying.

To be fair to Somerfield, it is doing some of the right things. It is moving towards higher-margin fresh foods and its Europartners buying consortium is helping keep costs lower.

Mr Simons is talking about home shopping trials and financial services but the fact is that rivals such as Tesco and Sainsbury are further ahead, have stronger brands and more funds. Somerfield is always going to be running to catch up.

Shareholders who were bold enough to apply for Somerfield shares last summer eventually got a very good deal at 145p. Though the shares dipped 5.5p to 168.5p yesterday, investors are still looking at a near 10 per cent gain. But that was the easy part. Further advances will be harder to achieve.

Brokers were shading down their full-year profit forecasts yesterday to pounds 100m this year and pounds 105m next. This puts them on a forward rating of just seven.

Braver souls may want to follow fund managers like PDFM and hold on for the long, long term. But it will be a stressful experience. Others should sell.

Suggested Topics
Start your day with The Independent, sign up for daily news emails
PROMOTED VIDEO
News
ebooksNow available in paperback
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

Ashdown Group: Marketing Services Manager - (communications, testing, DM)

£32000 - £35000 per annum + benefits: Ashdown Group: Marketing Services Manage...

Guru Careers: Finance Account Manager

£Neg. (DOE) + Excellent Benefits: Guru Careers: A Finance Account Manager with...

Ashdown Group: Java Developer - Hertfordshire - £47,000 + bonus + benefits

£40000 - £470000 per annum + bonus: Ashdown Group: Java Developer / J2EE Devel...

Ashdown Group: Direct Marketing Manager - B2C, Financial Services - Slough

£45000 - £55000 per annum + Benefits: Ashdown Group: An exciting opportunity h...

Day In a Page

Jeb Bush vs Hillary Clinton: The power dynamics of the two first families

Jeb Bush vs Hillary Clinton

Karen Tumulty explores the power dynamics of the two first families
Stockholm is rivalling Silicon Valley with a hotbed of technology start-ups

Stockholm is rivalling Silicon Valley

The Swedish capital is home to two of the most popular video games in the world, as well as thousands of technology start-ups worth hundreds of millions of pounds – and it's all happened since 2009
Did Japanese workers really get their symbols mixed up and display Santa on a crucifix?

Crucified Santa: Urban myth refuses to die

The story goes that Japanese store workers created a life-size effigy of a smiling "Father Kurisumasu" attached to a facsimile of Our Lord's final instrument of torture
Jennifer Saunders and Kate Moss join David Walliams on set for TV adaptation of The Boy in the Dress

The Boy in the Dress: On set with the stars

Walliams' story about a boy who goes to school in a dress will be shown this Christmas
La Famille Bélier is being touted as this year's Amelie - so why are many in the deaf community outraged by it?

Deaf community outraged by La Famille Bélier

The new film tells the story of a deaf-mute farming family and is being touted as this year's Amelie
10 best high-end laptops

10 best high-end laptops

From lightweight and zippy devices to gaming beasts, we test the latest in top-spec portable computers
Michael Carberry: ‘After such a tough time, I’m not sure I will stay in the game’

Michael Carberry: ‘After such a tough time, I’m not sure I will stay in the game’

The batsman has grown disillusioned after England’s Ashes debacle and allegations linking him to the Pietersen affair
Susie Wolff: A driving force in battle for equality behind the wheel

Susie Wolff: A driving force in battle for equality behind the wheel

The Williams driver has had plenty of doubters, but hopes she will be judged by her ability in the cockpit
Adam Gemili interview: 'No abs Adam' plans to muscle in on Usain Bolt's turf

'No abs Adam' plans to muscle in on Usain Bolt's turf

After a year touched by tragedy, Adam Gemili wants to become the sixth Briton to run a sub-10sec 100m
Calls for a military mental health 'quality mark'

Homeless Veterans campaign

Expert calls for military mental health 'quality mark'
Racton Man: Analysis shows famous skeleton was a 6ft Bronze Age superman

Meet Racton Man

Analysis shows famous skeleton was a 6ft Bronze Age superman
Garden Bridge: St Paul’s adds to £175m project’s troubled waters

Garden Bridge

St Paul’s adds to £175m project’s troubled waters
Stuff your own Christmas mouse ornament: An evening class in taxidermy with a festive feel

Stuff your own Christmas mouse ornament

An evening class in taxidermy with a festive feel
Joint Enterprise: The legal doctrine which critics say has caused hundreds of miscarriages of justice

Joint Enterprise

The legal doctrine which critics say has caused hundreds of miscarriages of justice
Freud and Eros: Love, Lust and Longing at the Freud Museum: Objects of Desire

Freud and Eros

Love, Lust and Longing at the Freud Museum