Tesco moves into property sales as Morrison reports record results.
Supermarkets have figured large in the business headlines of late. In a week that saw Morrison (Wm) Supermarkets (LSE: MRW) announce results for the year ending January 2010, we also heard that Sainsbury (LSE: SBRY) has expansion plans, and that Tesco (LSE: TSCO) is to move into the estate agency business.
Morrison has a good year
But let's start with the Morrisons figures, which were pretty impressive. The year's turnover rose by 6%, from £14.5bn to £15.4bn. But more impressively, underlying profit for the year came in at £767m, a jump of 21% from the previous year's £636m.
Underlying earnings per share rose handsomely too, up 23% to 20.5p, and the company was so confident in its performance that a full-year dividend of 8.2p is to be paid -- up a whopping 41%. That's a steady rise in dividends for four years in a row, with no sign of it abating.
During the year, Morrisons saw weekly customer numbers boosted by 7% over the previous year, opened 43 new stores (many bought from the Co-operative group) plus a new regional distribution centre for the South East, and was voted Retailer of the Year by Retail Week for the second consecutive year.
And the shares? All these good numbers were clearly too much for investors, and the price fell 2% on the news. That was probably because the chairman's statement contained the word "challenging". But Morrison doesn't seem too worried, planning to expand capacity by a further 1.5m square feet over the next three years.
Sell your house online
Tesco, meanwhile, is planning to launch an online estate agency business, iSold.com, advertised on Tesco's web site and backed by estate agents Spicerhaart. The service will initially be offered in Bristol, and then extended to a number of other cities across the UK.
Instead of the usual percentage fee, which tend to vary between 1.5% and 2%, iSold will offer a basic service for a flat £999. For higher-priced homes, that fixed fee could save sellers a hefty sum -- even a 1.5% charge on a £500,000 property would rack up £7,500 in fees. Selling via iSold, which will advertise properties on web portals like Rightmove (LSE: RMV) and Zoopla in addition to its own site, sellers will pay £299 up front to set up the deal, and the remaining £700 when the property is sold.
This comes after the Office of Fair Trading recommended that estate agency rules be relaxed, and called for greater competition from newcomers to help bring down fees.
Sainsbury to sell electronics
Sainsbury's expansion plans aren't so grand as to move into anything as novel as the estate agency business, but the company is apparently following in Tesco's shoes with plans to expand sales of electronics and entertainment goods, and sports equipment.
Sainsbury has always been seen as a more traditional supermarket retailer, and it is about three years behind Tesco with the sale of non-food goods online -- so maybe we'll see the company's first estate agency opening for business around 2013.
In the meantime, though, Sainsbury will avoid following Tesco into the clothing market, believing that there are high-margin product areas to exploit first.
Buy the shares?
Which is the best supermarket to invest in?
All of the supermarkets in the news this week are in good shape, and are coming out of the recession well-poised for future growth. But when considering the major players in a mature industry such as this, I'd really only buy the leader. And that's Tesco -- it's the most innovative and adventurous, and is the most aggressive in the expansion game, both in the UK and overseas.
With the shares on an estimated P/E of about 15 for the year ending February 2010, falling to 13 for 2011, and offering a dividend yield of over 3%, I reckon they're a better long-term home for our cash than anything the high street banks are offering right now.
More from Alan Oscroft
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