Investors went a bit crazy recently after the unconfirmed rumours of Apollo Global Management Inc. buying out Sainsbury (LSE:SBRY). Not only did the share volume increased more than 5 times, but the Sainsbury share price also rocketed 12%.
The deal, which has been rumored to be weighing around £7bn ($9.6bn), has made Sainsbury’s stock the hottest share on the market. Apollo, the private equity firm, lost the buyout deal last year for another leading UK supermarket chain called Asda. And it seems the firm may be attempting to enter the space again with Sainsbury.
What’s going on with the Sainsbury share price?
Sainsbury is one of the largest supermarket chains in the UK, with more than 1,500 supermarkets and on-the-go convenience stores. The latter of which is a relatively new addition to the firm’s store portfolio.
The Sainsbury share price is currently at around 310p, placing its market capitalisation at £7.24bn.Â
2021 has been an excellent year for the company, given the trajectory of its share price. In fact, year-to-date, the stock is up by nearly 30%. As an investor, I get super excited when I encounter such performance. And in my experience, it often leads to worthwhile investigations.
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The UK supermarket sector
According to IBIS World, the UK supermarket sector is estimated to be worth around £205bn. Given the volume of products sold, it’s not surprising to see the industry, in general, has strong cash flows, as well as massive property portfolios. With the vaccine rollout progressing quickly, the post-pandemic recovery has begun. And Sainsbury is seeing an elevated amount of sales both in-store and online. And this sales burst across the sector could be the catalyst behind the recent attraction of several private equity buyout’s. A few months back, Morrisons, another leading UK supermarket chain, was taken over by a US investment group CD&R.
Financial summary
In its 2021 annual report, the supermarket chain reported solid operating performance. At least, I think so. Online sales showed a staggering 102% increase, while grocery and general merchandise revenue both grew by around 8%. The proposed 10.6p full-year dividend has regained investor confidence despite the £261m net loss this year. Strong financials, in my opinion, are one of the prime factors behind the bullish trend in the Sainsbury share price.
Future outlook on the Sainsbury share price
Over the next five years, total revenue for this industry is anticipated to grow at a compound annual rate of 1.7% to reach £207.1bn. But, the supermarket sector will likely see a sharp rise in competition, especially within the e-commerce section.
Both Sainsbury and Apollo have not confirmed a buyout offer, titling the interest as “exploratory” at this stage. After Morrison’s, will Sainsbury be the next target of buyout? If it is, then the Sainsbury share price will most likely see a sudden jump. But without official confirmation, I can only speculate for now.
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Saima Naveed does not own shares in any of the companies mentioned. The Money Cog has no position in any of the companies mentioned. Views expressed on the companies and assets mentioned in this article are those of the writer and therefore may differ from the opinions of analysts in The Money Cog Premium services.
