Sainsbury’s hit by non-food blues, Persimmon with positive surprise and Greggs delivers the goods

“The FTSE 100 dipped on Wednesday off the back of downbeat sessions from Asia and the US last night,” says AJ Bell investment director Russ Mould.

“The market is still trying to work out if central banks are going to under-promise and over-deliver on interest rates cuts or if they really mean it when they say any such move is still some way off.

“Online appliance seller Marks Electrical sputtered off the back of a material profit warning largely driven by margin pressure. As a relatively new addition to the UK market, the company’s run of poor performance will be doing nothing to endear it to investors.

“In what looks a logical fit given the similarity of their franchised estate agent models, Belvoir and The Property Franchise Group have agreed an all-share merger. Consolidation is no surprise given the pressures facing the UK property market and having scale matters.

“Pennon’s decision to spend £380 million buying the owner and operator of Sutton and East Surrey Water may raise eyebrows given the existing need to invest in its own ageing infrastructure and fix sewage discharge issues.”

Sainsbury's

“Sainsbury’s has a ‘food first’ strategy and the big question from its Christmas trading update is whether management is guilty of neglecting the other parts of the group.

“Non-food sales were very disappointing, implying that Sainsbury’s is either leaving areas like clothing and Argos’ general merchandise offering to wither away or it simply isn’t pushing the products that people want.

“Sainsbury’s partially blames tough comparative figures from the previous year, yet it does feel as if Argos, in particular, has been bumped down the list of priorities for the group since Simon Roberts took over as chief executive.

“One has to question if the Argos brand is still the right fit for the grocery seller over the long term. If food is the priority, would the shop floor space currently occupied by Argos concessions be put to better use?

“Many fashion retailers suffered from the wrong kind of weather in 2023 to support the stock on their shelves. The sector has also been awash with promotions to shift items, meaning retailers have had no choice but to cut their prices if rivals are offering similar goods more cheaply. Naturally this is bad for margins. Sainsbury’s has been exposed to both factors.

“Despite the negative issues, the core food offering is doing well as illustrated by grocery volumes growing ahead of the market for the fourth Christmas in a row. Sainsbury’s used to sit in a difficult position – too expensive for people with limited resources and not attractive enough versus Waitrose for wealthier individuals. Prices have since been cut and its Taste the Difference ‘posher’ range is now having broader appeal.”

Persimmon

“A decent end to the year has breathed some life into Persimmon after a patchy start to 2023 which saw a profit warning and a dividend cut last March. While it saw a sharp decline in new home completions, the number achieved was better than expected. Average selling prices were also resilient.

“The housebuilding sector has been shaken over the past two years thanks to inflationary pressures on costs and higher interest rates putting the dream of home ownership out of reach for many people.

“Hope that interest rates could start to come down in 2024 has already led to lower rates on mortgage deals, which in turn should lead to more people having a go at trying to buy a property. Tentative signs of this trend are already in motion.

“However, rates are unlikely to come down rapidly, and so housebuilders aren’t suddenly going to see a flick of the switch which turns the property market back to full health.

“Persimmon is right to be cautious about the outlook, saying that market conditions will remain highly uncertain this year. No-one knows with certainty how the Bank of England will act with interest rate policy. Furthermore, the upcoming UK general election could cause a few wobbles in the market if buyers and sellers sit on the sidelines waiting to see which rabbits are pulled out of the hat by the winning political party before committing to a transaction.”

Greggs

“The encouraging thing about Greggs’ solid fourth quarter showing is it is built on many of the company’s own initiatives – making it very much the master of its own destiny.

“The extension of opening hours at its sites, product innovation, a more efficient supply chain and improved delivery options have all been material factors in Greggs’ ability to keep serving up an impressive performance.

“Even the slight negative in the update contains a grain of positivity for customers, with the lower sales growth in the final three months of the year largely driven by the company putting the brake on price increases thanks to easing inflationary pressures.

“Given value is a key component of the Greggs proposition, this ability to keep a lid on its prices is really important and points to an encouraging outlook for 2024. It is also underpinning the decision to open 160 new sites through the course of the year.

“Greggs is a well-run business with a keen sense of what its customers want and clear levers it can pull to augment growth. As such, it is little wonder investors have marked the shares higher today.”

These articles are for information purposes only and are not a personal recommendation or advice.