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MARKET COMMENT
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Yet another wheel has fallen off J Sainsbury's (LSE: SBRY) shopping trolley. If two profit warnings earlier in the year and an embarrassing payoff for failure for ex-boss Sir Peter Davis weren't enough, the troubled supermarket has now got itself in hot water with the Financial Services Authority. The FSA took an interest in the group following a note from Merrill Lynch on Friday. The City broker reduced its profit forecast made just a few days earlier, declaring Sainsbury had 'helpfully pointed out' that its previous £177m profit before tax estimate had been 'too high'. Merrill's revision came one week after Sainsbury's house broker, UBS, decided to cut its full-year forecast by £70m to £330m. The upshot of the FSA's 'selective disclosure' enquiry is possibly the first part of a two-stage profit warning. The hapless supermarket this morning indicated that first-half pre-tax profits would now be between £125m and £135m. However, it deferred any guidance on the full-year until next week's second-quarter update, when the findings of a business review will be announced. Note that today's forecast was stated before exceptional and restructure costs and compares to £366m reported in the first half of 2003. Despite today's update, it seems investors have got used to Sainsbury's continued bungling. The shares barely budged this morning, down a penny or two to around 250p. With today's statement indicating full-year earnings of about 11-12p per share and a dividend of maybe 6-7p, Sainsbury is no P/E or yield investment. Assets though are different matter. At the last count the balance sheet (less intangibles and pension deficit) was worth 267p per share, or 7% more than the share price. Freehold properties were by far the largest balance sheet component, totalling £4.8b. Note that this value is based on historical cost, with the last revaluation performed way back in 1973. In the latest annual report, Sainsbury's directors re-affirmed their belief that the open market value of the properties exceeded their stated net book value by a 'considerable margin' -- and it's hard to see even this company botching their worth. Profits may be wobbling like a troublesome shopping trolley, but at the current price, the value of property portfolio is providing some much needed stability to the shares. More: How To Buy £1 Coins For 50p | Long-Term FTSE Letdowns | Retail Bosses To Avoid