Sainsbury’s share price: what to expect from Q1 results

When is Sainsbury’s trading statement?

Sainsbury’s is expected to release a trading statement on 3 July, covering its first quarter.

Sainsbury’s trading statement: what does the City expect?

The failure of the Asda tie-up continues to loom large over Sainsbury's, and over its boss, Mike Coupe. The problem for Sainsbury’s is that it continues to lose market share to rivals, and especially to the German discounters Aldi and Lidl, which remain an ever-present threat to the big four UK supermarkets. Crucially, Sainsbury’s has suffered more than its peers in the battle with Aldi and Lidl, which means that it will have to work harder to restore its market share. Analysts at Bernstein noted that, while Tesco and Asda had cut margins on so-called ‘commodity items’, which make up around 15% of supermarket sales but represent 40% at discounters, Sainsbury’s still sells these at a 20% premium, making it less competitive.

Sainsbury’s needs to close that gap, or it will continue to lose market share. The firm has been keen to put the Asda story behind it, with barely a mention of it at the last results presentation. But aside from targeting reductions in net debt, the firm has yet to come up with a solid turnaround programme.

The upcoming trading statement is not likely to be the moment at which this is announced. Instead, investors will be looking for signs that sales growth is still present, especially on a like-for-like basis. In the longer-term, retaining market share will require cost cutting and price cuts, and while the dividend is solidly covered at two times earnings, it would be unwise to increase it further given the uncertain outlook.

Sainsbury’s trades at just 9 times forward earnings, the lowest level sine 2014 and well below the five year average of 12.1. These low expectations allow for positive surprises, but there is little in the way of growth at present. Mike Coupe has much work to do, if he is to restore a measure of shareholder confidence following the collapse of the Asda deal.

How to trade Sainsbury’s shares

Sainsbury’s shares have had a dire year, falling to their lowest level this century, moving just below the 188.5p level seen in 2016. The FTSE 100 is up 11% so far this year, while Sainsbury’s is down 28%. So far this year the shares have gapped lower twice, with lower highs in place since last August.

Sainsbury’s share price: technical analysis

The downtrend remains firmly in place here, with lower highs at 230p and 200p seen in the past three months. The overall trend remains lower unless the price can move above 200p in the first instance, and then target 230p. The 190p – 210p area was crucial support throughout the 2015 – 2018 period, and buyers may find it hard to break back above this as support becomes resistance. Continued losses will see the shares hit new multi-decade lows, with 190p near-term resistance as part of trendline resistance from the January high.

Sainsbury’s still in need of a plan

The failure of the Asda tie-up means Sainsbury’s has to come up with a viable plan for its future. At present, no such plan appears to be forthcoming. Mike Coupe remains in place, and for now seems to have the confidence of the board, but it is debateable whether he is the man to take the business forward. Ambition is needed here, especially with the share price at its lowest level in almost 20 years.