Sector spotlight: Food and Drug Retailers

In this weeks sector spotlight, we drill down into the Food and Drug Retailers sector, are there are any opportunities for investors?

Article updated: 12 August 2020 12:00pm Author: Michael Baxter

One could have been forgiven for assuming that the supermarkets would have done okay during the Covid crisis. After-all, we went out less (if at all) during lockdowns, and many of tried to make up for the misery of lockdown by cooking better food, maybe drinking better wine.

Yet of the companies listed in this sector only one, Naked Wines, has seen its share price at the time of writing actually exceed the start of year price.

For one company, Greggs, and as far as the share price performance is concerned, things were looking good before Covid. The Greggs share price went within a whisker of an all-time high earlier this year.

But for too many, the best days seem to be in the past. Morrison, Sainsbury and Tesco all saw their shares hit an all-time high before the 2008 crash.

At least SSP (a multinational catering company)  and Total Produce (Irish producer of fresh produce), saw shares peak in the last couple of years.

Bigger concern

I have a bigger concern with some of the companies, the big supermarkets, especially. Covid is likely to lead to a permanent rise in online shopping coupled with a considerable amount of remote working staying place. Not only will online shopping increase pressure on traditional retailers, but I worry about what will happen to commercial property prices.

The three supermarkets all have balance sheets that would look quite weak if it wasn’t for the value of their property assets. If these valuations take a significant knock, the result on their respective share prices could be nasty.

Only two companies, Naked Wines and Total Produce, enjoy a ratio of current assets to current liabilities that is greater than one. And with Total Produce, the ratio is only just over one.

The Share Centre holds a recommendation on three of the companies: Morrison, Sainsbury and Tesco. In each case, it has the shares down as hold.

Let’s take a look at some numbers:

Greggs

Share price 1397p
2020 high 2442p
2020 low 1300p
Five year high (2020) 2442p
All-time high (2014) 2442p
Change last 12 months -34%
Change last five years 12%
Change since 1993 2309%
Market cap £1,411m
Yield 0.85
P/E 15
Revenue growth since 2015 21.7%
Pre-tax profits growth 50.0%
Total assets/total liabilities 1.8%
Current assets/total liabilities 0.3%
Current assets/current liabilities 0.7%
net assets £346.0m

Morrisons WM

Share price 190p
2020 high 202p
2020 low 164p
Five year high (2020) 266p
All-time high (2014) 327p
Change last 12 months 3%
Change last five years 3%
Change since 1993 175%
Market cap £4,601m
Yield 3.54
P/E 13
Revenue growth since 2015 2.7%
Pre-tax profits growth -15.8%
Total assets/total liabilities 1.9%
Current assets/total liabilities 0.3%
Current assets/current liabilities 0.4%
net assets £4631.0m

Sainsbury (J) Hold

Share price 187p
2020 high 232p
2020 low 175p
Five year high (2020)  336p
All-time high (2014) 587p
Change last 12 months -2%
Change last five years  -30%
Change since 1993 -54%
Market cap £4,183m
Yield 1.75
P/E 32
Revenue growth since 2015 1.9
Pre-tax profits growth -41.6%
Total assets/total liabilities 1.6%
Current assets/total liabilities 0.5%
Current assets/current liabilities 0.7%
net assets £346.0m

SSP

Share price 231p
2020 high 685p
2020 low 151p
Five year high (2020) 761p
All-time high (2014) 761p
Change last 12 months -67%
Change last five years -29%
Change since 1993 -5%
Market cap £1,246m
Yield 5.09
P/E 8
Revenue growth since 2015 52.5%
Pre-tax profits growth 155.8%
Total assets/total liabilities 1.3%
Current assets/total liabilities 0.3%
Current assets/current liabilities 0.7%
net assets £415.0m

Total Produce

Share price 92p
2020 high 125p
2020 low 75p
Five year high (2020) 224p
All-time high (2014) 224p
Change last 12 months -25%
Change last five years 2%
Change since 1993 88%
Market cap £359m
Yield 3.36
P/E 8
Revenue growth since 2015 29.7%
Pre-tax profits growth 63.8%
Total assets/total liabilities 1.5%
Current assets/total liabilities 0.6%
Current assets/current liabilities 1.02%
net assets £550.0m

Tesco 

Share price 223p
2020 high 257p
2020 low 211p
Five year high (2020) 266p
All-time high (2014) 484p
Change last 12 months 3%
Change last five years 3%
Change since 1993 175%
Market cap £21,722m
Yield 4.13
P/E 22
Revenue growth since 2015 12.6%
Pre-tax profits growth 1.2%
Total assets/total liabilities 1.3%
Current assets/total liabilities 0.3%
Current assets/current liabilities 0.7%
net assets £13252.0m

Naked Wines

Share price 465p
2020 high 465p
2020 low 212p
Five year high (2020) 480p
All-time high (2014) 547p
Change last 12 months 72%
Change last five years -1%
Change since 1993 411%
Market cap £339m
Yield 0.43
P/E 41
Revenue growth since 2015 -56.3%
Pre-tax profits growth 260.0%
Total assets/total liabilities 2.4%
Current assets/total liabilities 1.7%
Current assets/current liabilities 1.8%
net assets £113.0m

These views are those of the author alone and do not necessarily reflect the view of The Share Centre, its officers and employees

Michael Baxter portrait photo
Michael Baxter

Economics Commentator

Michael is an economics, investment and technology writer, known for his entertaining style. He has previously been a full-time investor, founder of a technology company which was floated on the NASDAQ, and a director of a PR company specialising in IT.

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