Investors Stock up on Sainsbury’s Despite Merger Fail

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Wednesday, May 1: Sainsbury’s initially led the FTSE 100 higher, though PMI reads for UK manufacturing saw sterling strengthen against both the euro and US dollar prompting the UK’s primary index close in the red(-0.25%). UK’s April PMI read(53.1) was in line with the average forecast in a Reuters poll of economists, but lower than March’s 13-month high of 55.1 as the effects of stockpiling moderated given the extension to the Brexit process. One in five manufacturers reported that Brexit-related stock-building has continued to boost output in April. UK export demand was also noted lower.

Sainsburys(+4.25%) bounced as annual profit came in ahead of market expectations, providing some reprieve from the failed ASDA merger; blocked by the CMA last week. Revenue for the grocer rose to £29bn, from £28.46bn, though pretax profit fell to £239m from £409m as LFL sales dipped 0.2%. The company was impacted by £396m charges, £46m of which related to its aborted Asda takeover, with £81m pertaining to restructuring costs and £40m of Argos integration expenses. On an underlying basis pretax profit rose 7.8% to £635m, slightly ahead of a market consensus £626m. There was no further comment on the Asda merger, though management committed to strengthen the balance sheet by making a commitment to reduce net debt by £600m over the next three years.

Next(+1.19%) was marginally higher as Q1 trading came in ahead of expectations due to “unusually warm weather” over the Easter period. Full price sales were 4.5% higher year-on-year, ahead of Next’s forecast 3.2% growth. Despite exceeding expectations for the quarter, annual guidance was unchanged, with over-performance not expected to persist in the impending months.

Sales of Apple’s iPhone products declined at their steepest-ever rate during the three months to the end of March. Revenue from the iPhone dropped by 17% to $31bn, though CEO Tim Cook noted that sales were strengthening towards the end of March, especially in China where it slashed prices to boost demand. Despite declaring a record fall in sales, the tech giant lifted its outlook for Q2, spurring the stock 5% higher in after-hours trading. The company had warned of waning iPhone sales earlier in the year, especially in China where Apple competes with lower cost competitors Huawei Technologies and Xiaomi; moderating US-Sino trade tensions are expected to lift Chinese sales, alongside new initiatives such as trade-in and financing deals for the Chinese market.

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