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Research on the Investment Value of Sainsbury's Advances in Social Science, Education and Humanities Research, volume 543 Proceedings of the 2021 6th International Conference on Social Sciences and Economic Development (ICSSED 2021) Research on the Investment Value of Sainsbury’s Bowen Xiao1, a*, Qian Chen2b, Ziyang Yu3c 1Cass Business School City, University of London London, the United Kingdom 2School of Management University College London London, the United Kingdom 3International School of Economics and Management Capital University of Economics and Business a*Corresponding author. Email: [email protected] b*Corresponding author. Email: [email protected] c*Corresponding author. Email: [email protected] *These authors contributed equally. ABSTRACT This paper provides an analysis and evaluation of the market position and approximate future development of Sainsbury’s. Value investing strategy is used to examine if it is a good decision to invest in Sainsbury’s. The news about the firm’s failed merging with Asda and the effect of Coronavirus and Brexit is analyzed. Additionally, the share price is also discussed, and the reasons why Sainsbury’s tends to attract fewer investors currently are explained. The paper finds the prospects of Sainsbury’s in its current position, focusing on comparative performance in the area of profit margins, share price, expenses, and so on, particularly. We compared Sainsbury’s with Tesco. The profitability of Sainsbury’s is not as good as the other. The stock prices of these two companies are almost equivalent. Therefore, we concluded that Sainsbury’s is far behind Tesco. Results of data analyzed were shown in this paper, and according to the financial statement, we concluded the current and future development trend of the Sainsbury’s. With the macroeconomics theories, it can be found that the UK narrowly missed a recession, yet Sainsbury’s still plans to close down part of its stores in order to reduce its cost. Sainsbury’s is in a market of oligopoly, with the advantage that other companies can hardly entry. We also did a questionnaire about customers’ satisfaction in different supermarkets, and found the ranking compared with other stores like Tesco and ASDA. In addition, we discussed the development of online stores during the pandemic which may attract customers in the future, leading to a further decline in traditional supermarket brand’s market share unless they adapt. Keywords: Value investing, stock price, sainsbury’s, COVID-19, Brexit, profitability ratios 1. INTRODUCTION investors’ herd mentality can aggravate this problem. Value investing requires us to conduct in-depth research The world's stock market has recovered from the on the company. This thesis focuses on the analysis of pandemic to a new height. The longest stock market rally Sainsbury’s performance and its future prediction. in history was hit hard by the Coronavirus Disease 2019 (COVID-19) pandemic, but recovered in record time to Sainsbury’s, as the second biggest retailer in the UK, post new highs. However, when it comes to whether to has entered grocery, bank, furniture, and clothing market. invest in a particular company, investors and scholars Since the failure of the merger with ASDA in 2019, the may hold different views. Value investment is a kind of stock price of the company has gone through a big fall, investment paradigm, which originates from the thought followed by a sharp rise due to the quantitative easing of Benjamin Graham and David Dodd [1]. The main idea policy. However, the outbreak of COVID-19 is a great is to select stocks that appear to be trading for below their shock to the whole British economy and has changed intrinsic value, which was argued by the supporters, people's lifestyle and industrial structures to a certain including Warren Buffett, chairman of Berkshire extent. For example, people tend to buy daily necessities Hathaway. The difference between stock price and and food online rather than in physical stores. This intrinsic value is called the margin of safety [2]. Market external condition prompted those large retailers to price does not always reflect the intrinsic value of stocks, develop online supermarkets. At the same time, because market may overreact to good and bad news, and considering the impact of Brexit, there are many Copyright © 2021 The Authors. Published by Atlantis Press SARL. This is an open access article distributed under the CC BY-NC 4.0 license -http://creativecommons.org/licenses/by-nc/4.0/. 108 Advances in Social Science, Education and Humanities Research, volume 543 uncertainties in the UK market. However, this market outstanding, short-term and long-term debt, cash, environment also brings opportunities for the recovery EBITDA. We calculated P / E, EV / EBITDA, GP / Asset, and development of Sainsbury’s. A company with a good and EPS growth rates for comparison. The reason for policy to deal with the epidemic is likely to gain more choosing EPS for two years is to calculate the EPS market share. growth rate to test the stability of Sainsbury’s. The main idea of the paper is to use value investing to help investors clarify whether Sainsbury’s is suitable 2.2. Method for investment and the current circumstances among The central idea for this thesis is value investing. Both supermarket industry. This article will clearly discuss qualitative and quantitative analysis are used in the Sainsbury’s operation and the impact of the market research. First, the study aims to come out the conclusion environment through qualitative and quantitative by using SWOT analysis, which is a typical model in analysis, which will help investors to predict the future financial field. By investigating and analyzing the market development of the company. This study is a good share, the fixed position of the customer in the market, example of value investing, and is also applicable to the and the scope of business, the results of the measures are supermarket industry. Finally, this paper will make a compared with other companies in the supermarket judgment and summary on whether it is suitable to invest industry for analysis. Second, data of market shares per in Sainsbury’s company. year are presented, which is a standard to judge 2. DATA AND METHOD Sainsbury’s performance. Additionally, the change of revenue, dividend yield, and share price are used in the 2.1. Data paper as a result of internal factor of integration. Third, in terms of value investing, GP/Asset, EV/EBITDA, P/E The main data of the paper includes some valuation and a dividend yield of Sainsbury’s are indices that can and profitability ratios, which are obtained from influence investment choice for the company, compared Sainsbury’s annual report and London Stock Exchange. with the value of their biggest competitors-Tesco. This database is based on two leading enterprises in To be more specific, these formulas will be used in supermarket industry -Tesco and Sainsbury’s. According the calculation. to their financial annual reports, we can get several basic data, such as stock price, earnings per share, share For Sainsbury’s, 푆ℎ푎푟푒 푝푟푐푒 252.9 푝푒푛푐푒 퐏퐫퐢퐜퐞 − 퐄퐚퐫퐧퐢퐧퐠퐬 퐑퐚퐭퐢퐨(퐏/퐄) == = = 43.6 퐸푎푟푛푛푔푠 푝푒푟 푠ℎ푎푟푒 5.8 푝푒푛푐푒 푀푎푟푘푒푡 푣푎푙푢푒 + 퐿표푛푔 푡푒푟푚 푑푒푏푡 + 푆ℎ표푟푡 푡푒푟푚 푑푒푏푡 − 퐶푎푠ℎ 퐄퐕/퐄퐁퐈퐓퐃퐀 = 퐸퐵퐼푇퐷퐴 £2,235 ∗ 2,217 푚푙푙표푛 + £2,728푚 + £4,486 푚푙푙표푛 − £994푚 = = 6.51 £1,716푚 퐺푟표푠푠 푝푟표푓푡푠 £2,016푚 퐆퐏/퐀퐬퐬퐞퐭퐬 = = = 7.22% 퐴푠푠푒푡푠 £27,937푚 ∗ 100% 퐸푃푆 (2020) − 퐸푃푆 (2019) 퐆퐫퐨퐰퐭퐡 퐫퐚퐭퐞 퐨퐟 퐄퐏퐒 = 퐸푃푆 (2019) 5.8 푝푒푛푐푒 − 7.6 푝푒푛푐푒 = ∗ 100% = −23.68% 7.6 푝푒푛푐푒 푇표푡푎푙 푑푣푑푒푛푑 푦푒푙푑 £109 푚푙푙표푛 퐃퐢퐯퐢퐝퐞퐧퐝 퐲퐢퐞퐥퐝 = = = 4.9% 푁푢푚푏푒푟 표푓 푠ℎ푎푟푒푠 표푢푡푠푡푎푛푑푛푔 2,217 푚푙푙표푛 For Tesco, 푆ℎ푎푟푒 푝푟푐푒 244.9 푝푒푛푐푒 퐏퐫퐢퐜퐞 − 퐄퐚퐫퐧퐢퐧퐠퐬 퐑퐚퐭퐢퐨(퐏/퐄) = = = 24.51 퐸푎푟푛푛푔푠 푝푒푟 푠ℎ푎푟푒 9.99 푝푒푛푐푒 푀푎푟푘푒푡 푣푎푙푢푒 + 퐿표푛푔 푡푒푟푚 푑푒푏푡 + 푆ℎ표푟푡 푡푒푟푚 푑푒푏푡 − 퐶푎푠ℎ 퐄퐕/퐄퐁퐈퐓퐃퐀 = 퐸퐵퐼푇퐷퐴 £2,355 ∗ 9,793푚 + £8,045푚 + £10,736 푚푙푙표푛 − £3,408푚 = £4,299푚 = 8.94 퐺푟표푠푠 푝푟표푓푡푠 £4,580푚 퐆퐏/퐀퐬퐬퐞퐭퐬 = = = 8.76% 퐴푠푠푒푡푠 £52,302푚 ∗ 100% 퐸푃푆 (2020) − 퐸푃푆 (2019) 퐆퐫퐨퐰퐭퐡 퐫퐚퐭퐞 퐨퐟 퐄퐏퐒 = 퐸푃푆 (2019) 9.99 푝푒푛푐푒 − 13.13 푝푒푛푐푒 = ∗ 100% = −23.91% 13.13 푝푒푛푐푒 푇표푡푎푙 푑푣푑푒푛푑 푦푒푙푑 £419 푚푙푙표푛 퐃퐢퐯퐢퐝퐞퐧퐝 퐲퐢퐞퐥퐝 = = = 4.28% 푁푢푚푏푒푟 표푓 푠ℎ푎푟푒푠 표푢푡푠푡푎푛푑푛푔 9,793 푚푙푙표푛 109 Advances in Social Science, Education and Humanities Research, volume 543 benefit, which also maintains sustainability. To develop loyal customers, Sainsbury’s established its own food 3. MARKET EVALUATION AND brand with the same name with lower prices by COMPETITIVENESS comparing it with the market price to attract more consumers to strengthen brand loyalty [4]. When distinguishing whether Sainsbury’s is a good investment option or not, one of the mainly used In terms of ethical position and corporate Social evaluation models is SWOT. Four main characteristics Responsibility, Sainsbury’s says that they are committed are considered and analyzed by this model: strength, to ethical trading, sourcing its products with integrity weakness, opportunity, and threat. This model will focus avoiding waste. Also, before buying from suppliers, they on all of them and describe them deeply with recent ensure that the farms in all 70 countries they buy from are events and analysis. We use SWOT to compare the not involved in modern-day slavery or trafficking by internal and external strengths and weaknesses of vetting each farm and providing workshops for Sainsbury’s, and better understand its potential employers to help them avoid it [5]. Sainsbury’s also opportunities and threats. aims to protect seasonal worker’s rights after being exposed in 2015 for buying from suppliers in the UK who 3.1. Strength took advantage of eastern European workers. They claim that their training of suppliers has helped them obtain a Strengths are referring to capabilities that 75% return rate of agency workers from abroad.
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