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MARKET COMMENT
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This morning J Sainsbury (LSE: SBRY) announced that it had sold Homebase for £969m, a fraction under the £1b marker it had initially laid down. The actual business is going to Schroder Ventures for £750m whilst Kingfisher is buying 28 development sites for £219m. It's a good price considering that the initial marker is akin to the the price you advertise when you sell your house. You are unlikely to get any more. So now that Sainsbury's has got rid of the distraction of the home improvement market is it a more attractive investment? As Tesco (LSE: TSCO) would say -- every little helps. But it's not enough in my opinion. Homebase accounted for around 10% of Sainsbury's sales and profits. Sainsburys is valued at £8b and has £1.5b in debt so on pure numbers this disposal makes little difference. Will the extra focus after this disposal really enable Sainsbury's to catch up the ground it has lost to the competition? I think the gap is too great and time freed up by this move is too little. A recent survey by Taylor Nelson Sofres (LSE: TNN) showed that Asda is now selling more goods by volume than Sainsbury's, taking the number 2 spot. Sainsbury's still sells more by value. But the most revealing data was the growth in value sold over the last five years. Asda has managed 67%, Tesco 37% and Safeway (LSE: SFW) 22%. Sainsbury's produced a woeful 7.5%. Walking round their stores I still get the impression of a tired old retailer that got too complacent. The new boss, Peter Davis, still has much work to do. Despite this the shares are valued at 21 times forecast profits for the year to March 2001 and 19 times for the year after. That looks too expensive to me -- the prospect of further gains is unlikely. They shares have already risen some 50% since March as investors have sought refuge away from technology shares. When they eventually come out from hiding Sainsbury's could suffer. Where Next? J Sainsbury discussion board
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