As a result of this, on the face of it the offer appears to be a rather enticing one for investors in British Polythene. However, with the company’s shares trading on a price-to-earnings (P/E) ratio of just 11.7, it appears to be a less generous offer than at first glance. Certainly, the combined company could deliver improved profitability in the long run, but with British Polythene forecast to record growth in the next two years and having such a low rating, it may have offered superior long term capital gain prospects on its own.

Also rising today are shares in Wincanton (LSE: WIN). The supply chain solutions company’s shares are up by around 7% after it reported an encouraging set of full-year results to 31 March. Revenue increased by 4.4%, with a strong performance being delivered on new business wins and additional volumes in retail general merchandise. This helped the company’s underlying pretax profit to rise by 12.4% versus the prior year, with lower finance and tax charges aiding the company’s financial performance.

Looking ahead, Wincanton is expected to record a rise in its bottom line of 17% next year. This has the potential to cause a step-change in investor sentiment over the medium term, with Wincanton’s price-to-earnings growth (PEG) ratio of 0.4 indicating that the company offers a wide margin of safety. And with dividends being reintroduced, it appears as though Wincanton’s management team is upbeat about its future prospects which bodes well for the company’s investors.

Meanwhile, Home Retail (LSE: HOME) also reported today. The Argos owner recorded a rise in like-for-like (LFL) sales of 0.1% in the first quarter of the year, with total sales increasing by 2.6% versus the same period of the previous year. However, with gross margins falling by 100 basis points as a result of adverse currency and shipping costs as well as an adverse sales mix, the operating environment for retailers such as Argos remains challenging.

Looking ahead, Home Retail is on-track to be acquired by Sainsbury’s in the third quarter of the year. This seems to be a sound move for both companies since it should generate significant synergies as well as substantial cross-selling opportunities. As such, buying a slice of the combined entity appears to be a sound long term move.

The post Should you buy British Polythene Industries plc, Home Retail Group plc and Wincanton plc after today’s updates? appeared first on The Twelfth Magpie.

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Don’t bank on it

HSBC (LSE:HSBA) shareholders have endured an awful three years. The shares, priced as high as 754p in 2013, are now down to 447p. A loss of capital is bad enough but could the dividends go too?

Sufficient dividend cover is essential if companies are to keep their payouts. This is the ratio of a company’s net income over the dividend paid. If this number drops below one, it indicates that a company is dipping into reserves to fund its payout. This can only be sustained for a short period if earnings don’t improve.

As things stand, HSBC shares currently yield a sky-high 7.6% and are just about covered by earnings. This isn’t an encouraging sign, even if Britain does remain in the EU and the shares rise after 23 June. With Lloyds offering a yield of 6%, almost twice covered, I know which bank I’d feel more secure owning.

Running dry?

With a barrel of Brent Crude recently passing the $50 mark, it looks like the price of oil may have hit its nadir back in January. We couldn’t have known back then, of course, and nor can know for sure what will happen in the future.

It’s not just the volatility of the oil price (or the size of the CEO’s pay packet) that make me bolt from BP’s (LSE:BP) shares though. It’s the questions surrounding the company’s payout. In dark times, the dividend should be the one thing to appease frustrated investors.

BP currently yields a massive 7.5%. Here, however, the cover is a pitiful 0.45. Should the price of black gold fall or just fail to rise significantly in the near term, BP’s dividend could be reduced or scrapped. Will those investing for income really want to take that risk with so many other, more stable opportunities available?

One to discount?

Sainsbury’s (LSE:SBRY) price price war with its ‘big four’ and German rivals needs no introduction. A recent report by Kantar Worldpanel estimated that the established players continue to lose market share to the latter. On Wednesday, the market will discover how the company has fared in the last few months when it issues a trading update.

Investors will also want to learn more about the offer for Home Retail. This may turn out to be a masterstroke by CEO Mike Coupe, but I need to be convinced. In troubled times, retailers should be focusing on the basics and attracting people back to their stores. To me, Argos represents a tired brand. If shareholders fail to see the deal’s attraction (and like-for-like sales have also dipped), Sainsbury’s share price could fall quite significantly.

Sainsbury’s currently yields 4.9% for 2016. Is a cut likely? Perhaps not given that, according to Stockopedia, this payout is covered almost twice by earnings. Indeed, it’s done well to sustain such a decent dividend given the current climate. That said, I suggest that most private investors would be better off channelling their wealth elsewhere given the incredibly competitive groceries market and the uncertainty surrounding the recent takeover.

The post Are HSBC Holdings plc, BP plc and Sainsbury plc DIVIDEND DISASTERS in the making? appeared first on The Twelfth Magpie.

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Paul Summers has no position in any shares mentioned. The Motley Fool UK has recommended BP and HSBC Holdings. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.

Sales in focus

This week there are two interesting companies that should be tying the knot during Q3 both reporting to the market. Sainsbury’s (LSE: SBRY), one of the big four supermarkets, and Argos owner Home Retail (LSE: HOME). While not naturally linked, Sainsbury’s has made an offer for Home Retail that has been accepted by the board and recommended to shareholders so the two should be looking for maximum synergies come Q3.

Since the offer was made earlier this year, Home Retail’s shares have (rather unsurprisingly) outperformed the wider market, so too have Sainsbury’s owing to a better than expected sales performance than was feared by the market. However, as can be seen by the chart, both of the shares have been falling of late, in line with a number of other retailers.

First up will be Sainsbury’s reporting on Wednesday. Investors will be hoping for signs of like-for-like sales improvement, which is unlikely given the downbeat view of Kantar Worldpanel on the major supermarkets published at the beginning of May. That said, under the leadership of CEO Mike Coupe, the group is showing signs of turning itself around with better than expected results revealed at the start of May.

Following Sainsbury’s on Thursday is Home Retail. Given the upcoming transaction with Sainsbury’s in the third quarter, any further deterioration in trading could impact on both share prices as the market may call into question the merits of the deal, especially due to the strength of rivals such as Amazon where growth is showing no signs of stopping.

Just Argos it?

All that said, despite the difficult environment across the retail sector, it doesn’t look to me that Sainsbury’s has overpaid for Argos and its infrastructure given that management believes the acquisition will be earnings enhancing in the first full year following completion. That’s despite the near-14% dilution that will be bought about by the issuance of 261m new shares during the third quarter.

In addition to the earnings enhancements, management believes it can bring about significant synergies (cost savings to you and I) as head office functions and infrastructure are merged, bringing about a leaner machine within the next three years.

Additionally, many Argos stores will be either closed or relocated as leases expire, meaning we should start to see much more in the way of Argos concession stores in our local Sainsbury’s store, which could boost sales.

Fighting on all fronts

However, as I’ve alluded to above, the sector is currently crowded, which in the end will mean survival of the fittest – whether that means disruptive businesses such as Amazon, or eBay, only time will tell.

Combine that with an ultra-competitive, not to mention deflationary, grocery sector and it means Sainsbury’s needs to be up for the challenge and executing the company strategy to the letter in order to stay competitive.

The post Is J Sainsbury plc biting off more than it can chew with Home Retail Group plc? appeared first on The Twelfth Magpie.

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The post J Sainsbury plc Doesn’t Need Home Retail Group plc To Grow appeared first on The Twelfth Magpie.

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The supermarket firm has already made an indicative offer valued at around £1.3bn, but that was trumped by South African operator Steinhoff, which wants to gain a foothold in the UK general retail market. Both firms now have until 5pm on Friday 18 March to either make a formal offer or walk away, so will Sainsbury up its bid to £1.5bn as some are speculating?

Tuesday’s fourth-quarter update from Sainsbury didn’t really do anything for the share price, which has had an erratic-but-going-nowhere overall 12 months, though we have seen a 20% rise since 26 January, to 278p.

Price wars

And while the firm’s clothing and entertainment sales grew strongly, with online sales climbing too, cut-throat price wars in the groceries market helped keep like-for-like sales in the quarter to a mere 0.1% growth. Chief executive Mike Coupe was moved to say: “The market will remain competitive as food deflation continues to impact sales growth“. So are we looking at one struggler going after another in an attempt to make things better?

Sainsbury has pointed out that a combination of both chains would produce something bigger than either Amazon UK or John Lewis, but therein lies what I see as the biggest downside too. Neither Sainsbury nor Argos has the same moat that those two ‘best-in-market’ retailers arguably have.

Challenging the leaders

Amazon has a huge defensive position in its infrastructure, which it has been building in the UK since way before Sainsbury sold its first online banana and when Argos was all about paper catalogues, tiny pens, and a magic conveyor belt. And Argos is struggling to even make a dent in Amazon’s dominance. Meanwhile John Lewis has a reputation for customer service that is second to none. In fact, a picture of two dinosaurs springs to mind: “If we Tyrannosaurs merged with Apatosaurus, we’d be much bigger than those little mammals…“

The proposed takeover deal might be a good one for Home Retail shareholders as it will get them out of relying on their own struggling Argos business, though those who want out might well be advised to sell on the free market at 181p rather than hope for an offer that would beat it. If neither offer turns formal by the Friday deadline, we should expected a share price retreat.

Good for Sainsbury?

But when it comes to the interests of Sainsbury shareholders, I just don’t see the sense in it. Sainsbury needs to get its core business back in order, and its ongoing fall in earnings per share isn’t expected to turn around until the year to March 2018. This isn’t the time, in my view, for Sainsbury’s management to be taking its eye off that ball — especially not to focus it on a second-rate retailer in the hope of wooing those millions of online shoppers out there.

What would I do if I owned Sainsbury and Home Retail shares? I’d sell them both and seek out companies at the top of their game instead.

The post Would A Takeover Of Home Retail Group Plc By J Sainsbury plc Be Good For Shareholders? appeared first on The Twelfth Magpie.

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Alan Oscroft has no position in any shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.

Furthermore, RWS is benefitting from positive currency translation and expects to consolidate its market-leading positions within its chosen sectors. As such, it seems likely that forecasts for growth in earnings of 17% in the current year will be increased and this makes RWS’s price-to-earnings growth (PEG) ratio of 1.3 appear to be extremely good value.

That’s especially the case when you consider that RWS enjoys significant barriers to entry and a relatively wide economic moat, thereby providing relatively consistent financial performance. As such, it seems to be a strong long-term buy.

Wait and see

Also reporting today is Tungsten (LSE: TUNG), with the electronic invoicing and analytics company stating that trading in the third quarter was in line with market expectations. Revenues for the full year to 30 April 2016 are expected to be broadly in line with previous guidance, while Tungsten continues to anticipate an EBITDA loss for the year of no more than £15m (excluding one-off items).  Furthermore, Tungsten believes it’s on track to break even on an EBITDA basis by the end of the 2017 financial year, which could be viewed as a positive event by the market.

Despite this, Tungsten’s share price has fallen by as much as 10% today following the release, although it’s still up by a whopping 61% since the turn of the year. While it’s tempting to buy now due to the improved investor sentiment of recent months and the expected improvement in the company’s financial performance, it could be prudent to wait for confirmation of profitability before buying a slice of Tungsten.

Bright future?

Meanwhile, Sainsbury’s (LSE: SBRY) has also been in the news of late regarding its bid for Home Retail. The inclusion of Argos within the Sainsbury’s business seems to be a logical step, since it should create synergies and boost sales at both companies due to the potential for cross-selling opportunities. In addition, it may help to diversify the Sainsbury’s brand away from food retailing and clothing.

Looking ahead, Sainsbury’s is likely to benefit from an improving UK consumer outlook. With inflation being low and wage growth on the up, disposable incomes are rising in real terms and this could help to push some customers back towards mid-market operators such as Sainsbury’s and away from no-frills supermarkets such as Lidl and Aldi. And with Sainsbury’s trading on a price-to-earnings (P/E) ratio of just 11.3, it appears to offer good value for money given its bright long-term future.

The post Should You Buy J Sainsbury plc, Tungsten Corp PLC And RWS Holdings plc After Recent News Flow? appeared first on The Twelfth Magpie.

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• How much is needed in a Stocks and Shares ISA to aim to retire on £12,548 a year?

Peter Stephens owns shares of RWS and Sainsbury (J). The Motley Fool UK has no position in any of the shares mentioned. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.

The terms of the potential bid are as follows. Investors in Home Retail would receive 55p in cash per share, as well as 0.321 New Sainsbury’s shares. In addition, they would receive 25p per share as a capital return from the proposed sale of Homebase as well as 2.8p per share in lieu of a final dividend in respect of the 27 February 2016 financial year.

The deal values Home Retail at around £1.3bn (161.3p per share) and with its shares trading at a market capitalisation of £1.25bn they offer limited upside from here (around 5%) if the deal goes through.

Strategy divergence

In terms of what this means for the UK retail sector, it essentially shows a divergence in strategy among the major supermarkets. Tesco and Morrisons have gone back to their core offering and are making asset disposals, closing down unprofitable business lines and seeking to reconnect with their customers via a back-to-basics approach. Sainsbury’s is instead diversifying into new areas.

Certainly, the operations of Argos have some overlap with Sainsbury’s in so far as it’s a UK-focused retailer. But the purchase of Argos will help to diversify Sainsbury’s and could reinvigorate the company’s bottom line in the coming years. For example, Sainsbury’s believes there are substantial cross-selling opportunities on offer through having Argos concessions in its stores and intends to generate synergies of at least £120m from the deal.

Turnaround project

Of course, Home Retail is itself a turnaround project. As its most recent update showed, sales at Argos continue to fall on a like-for-like basis. They fell by 2.2% during the Christmas period. Although there’s a transformation plan in place that appears to be moving the business in the right direction, there could be a number of short-term challenges ahead that cause uncertainty in Sainsbury’s financial outlook.

And with Home Retail recently reporting that profit for the full year will be at the lower end of market expectations, its purchase would be a longer-term move rather than a means of significantly boosting investor sentiment or profit growth in the near term.

Clearly, Argos has substantial long-term growth potential and could prove to be an excellent buy further down the line. Furthermore, Sainsbury’s appears to be buying it ahead of potentially improved performance. In fact, Sainsbury’s believes that the deal will lead to double-digit earnings per share accretion in the third full year following completion. If met, that would represent a significant improvement on its own long-term outlook.

So, while it appears to be a relatively risky move due to both companies struggling to grow their earnings at the present time, it’s one that could pay off handsomely in the long run.

The post Would A Bid By J Sainsbury plc For Home Retail Group Plc Be A Game Changer? appeared first on The Twelfth Magpie.

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Peter Stephens owns shares of Morrisons, Sainsbury (J), and Tesco. The Motley Fool UK has no position in any of the shares mentioned. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.

The post Why Would J Sainsbury plc Buy Home Retail Group plc? appeared first on The Twelfth Magpie.

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Owain Bennallack has no position in any shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.