- Shares jump 5% on surprise announcement
- Wholesaler keen to buy more shares
- End game may be a strategic partnership
Shares in J Sainsbury (SBRY), the UK’s second-largest supermarket group by market share, jumped more than 5% to a nine-month high of 251p on news of stake-building by privately-owned Bestway Group.
Conglomerate Bestway notified Sainsbury’s it had bought or agreed to buy 80.8 million shares representing a 3.45% stake and ‘may look to make further market purchases’.
WHY IS BESTWAY BUYING SHARES?
As well as owning cement plants, real estate, a bank and a pharmacy chain - which it acquired from the Co-operative in 2014 - Bestway owns the largest independent wholesaling operation in the UK.
The wholesale business has gained significant critical mass over the last five years with the acquisition of Conviviality Retail and Costcutter Supermarkets and employs over 5,400 people, serving over 130,000 independent retailers with more than 25,000 product lines.
While Bestway hasn’t said as much, it would seem logical it is looking to partner with Sainsbury’s in the same way rival Tesco (TSCO) has partnered with Booker after taking the wholesale business over in March 2018.
In its statement to the Stock Exchange, the group said it ‘intends to hold its shares in Sainsbury’s for investment purposes and looks forward to supporting the executive management team’.
It added that while it wasn’t looking to bid for Sainsbury’s, which turned over £28 billion last financial year compared with Bestway’s revenues of £4.5 billion, it was happy to hear from institutions or retail shareholders keen to sell their shares.
In its response, Sainsbury’s said it noted the share purchase and would ‘engage with Bestway Group in line with our normal interactions with shareholders’.
EXPERT VIEWS
‘As the UK’s largest independent cash and carry business, Bestway’s strategy is to be seen as a place where retailers, caterers and cafes can obtain all the stock they need at a good price’ observed AJ Bell investment director Russ Mould.
‘If Sainsbury’s was part of the same group, both sides could benefit. In theory, Bestway could tap into the supermarket’s buying power and obtain stock at a lower price, thus making its proposition more appealing for its customers.
‘Sainsbury’s could expand its reach and have good access to a broader customer base including foodservice and pet shops, while also being able to compete better against Tesco’ added Mould.
Having a stake of more than 3% is a good way to get management’s attention and push for a seat at the top table, particularly if it is followed by further share purchases.
Shore Capital’s head of consumer research Clive Black suggested the surprise stake-building could ‘spark some chatter around both Sainsbury and the wider sector with respect to corporate activity and equity values, noting that current metrics are undemanding’.
‘Sainsbury shares currently yield 10% on a free cash flow basis (5%+ dividend yield). With this news there may also be some short closing in Sainsbury stock, which could also lead the stock to being marked higher.’
DISCLAIMER: Financial services company AJ Bell referenced in this article owns Shares magazine. The author of this article (Ian Conway) and the editor of this article (Martin Gamble) own shares in AJ Bell.
