Proactive Investors -
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Sainsbury 's strategy update a "potential positive catalyst"
Barclays (LON:BARC) thinks Sainsbury’s Strategy Update on February 7 is a potential positive catalyst.
This reflects expectations for a share buyback, potential margin guidance and clarity on growth opportunities.
“Although our feeling is that the market does at least partially anticipate the possibility of share buybacks beginning, we think there is scope for Sainsbury to make a more definitive statement about the profit growth opportunity than the market expects.”
“Consequently, we do see the February event as a potential share price catalyst.”
The bank thinks Sainsbury will be keen to emphasise opportunities to build on its strong momentum.
Potential opportunities include sales growth, cost savings, Argos and alternative revenue streams (eg retail media, real estate and financial services).
Barclays thinks it is possible that Sainsbury might feel sufficiently confident to issue some specific margin guidance - something it has not done for quite some time - given: i) commentary on price investment; ii) commentary on cost savings; and iii) low margins by historical standards.
Sainsbury (LON:SBRY) has also confirmed it will address capital allocation and Barclays expects the food retailer to announce an intention to begin a share buyback.
“We think Sainsbury can afford to spend £200-300 million per annum on share buybacks,” Barclays said.
Manufacturing downturn shows no signs of abating
Samuel Tombs at Pantheon Macroeconomics notes the CBI survey shows the downturn in the manufacturing sector is showing no signs of abating, even though the wider economy is beginning to strengthen.
He pointed out that the total orders balance is not seasonally adjusted and usually falls sharply at the start of the year.
Nonetheless, his seasonally adjusted version of the orders balance dropped to -28 in January, from -26 in December, taking it further below its 2015-to-19 average, -3.
He noted stocks of finished goods also are accumulating rapidly, putting further downward pressure on production.
“While some manufacturers might seek to hold higher-than-usual levels of inventory over the coming months due to concerns about the dependability of shipping lanes, we think that most of the recent increase in stocks is involuntary,” he added.
In addition, Tombs pointed out the quarterly net balance of manufacturers planning to invest more in plant and machinery fell again to -15 in January - the lowest level since Q1 2021 - from -11 in October.
“This year, therefore, looks set to see a further erosion of the UK’s meagre manufacturing base,” he concluded.