Supply of all types of social housing has failed to keep up with demand over the past decade. And Home REIT is investing vast sums to soothe this shortfall. It raised £350m via a rights issue in September, almost half of which it has just spent to acquire 366 properties. The company’s acquisition pipeline is packed with other opportunities, which it’s ready to pull the trigger on, too.

Home REIT’s acquisition-led growth strategy leaves it open to a series of risks like huge unexpected costs and disappointing revenues growth. But there’s still plenty of reasons why I like this ESG share today.

A acquisition-led UK stock on my radar

Begbies Traynor (LSE: BEG) is also high on my shopping list today. This is because I think the number of corporate casualties could unfortunately be poised to soar as the British economy slows and the furlough financial support scheme ends. According to the Insolvency Service there were 1,446 insolvencies in England and Wales last month. That was an eye-watering 56% year-on-year increase.

I wouldn’t buy this UK share just because I expect profits to leap in the short-to-medium term. I think it could rate terrific shareholder returns over the next 10 years, as its acquisition-led growth strategy rolls on. Begbies Traynor operates in a highly regulated industry and future potential changes in the law could affect its profits.

Another chance to make big money!

I believe Mind Gym (LSE: MIND) could be another great company to buy for my portfolio for the next decade. This UK share has risen 133% in value over the past year alone. I expect it to keep soaring too as companies try to support workers’ mental health and improve their productivity following the Covid-19 crisis.

Mind Gym saw revenues jump 76% year-on-year in the six months to September. Sales were also up 7% compared to the same 2019 period. The business of behavioural science is booming and Mind Gym says that it’s worked with half of all FTSE 100 and S&P 100 companies. However, it’s not just the big hitters that are investing in their workforce’s wellbeing. A GlobalData survey shows that around one-third of UK small to medium-sized companies have increased their support for mental and physical wellbeing since the Covid-19 outbreak.

I also like Mind Gym’s decision to ramp up investment in its digital proposition. As a consequence, digital now accounts for more than 80% of group sales. Project overruns and disappointing returns could have a significant impact on predicted profits.

The post 3 UK stocks I’d buy to make BIG money in the next 10 years appeared first on The Motley Fool UK.

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 Motley Fool UK.

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 Motley Fool UK.

The first issue is the price Sainsbury is paying for Argos, since DIY retailer Homebase is being sold off prior to the acquisition going through. Although the deal is being craftily financed through a mix of shares, cash on hand and financing from Sainsbury’s internal bank, the purchase is an expensive one. With the final price of 171.5p per Home Retail Group share, a 75% premium to their pre-takeover announcement price, Sainsbury is buying the struggling retailer at a very pricey 19 times forward earnings. Additionally, Sainsbury plans to close up to 55% of the Argos locations, yet it’s paying a fortune to buy stores it will then shutter.

Second, and most importantly, the acquisition does little to solve the larger issues each retailer is facing. Sainsbury’s management is pursuing the deal in order to place the Argos click-and-collect locations inside increasingly unpopular large out-of-town locations. Yes, Sainsbury has seen incremental increases in sales of non-food goods at these stores, and placing Argos outlets inside them will increase footfall and sales in the short term. But these small increases do little to answer the more fundamental problems facing the Argos and Sainsbury business models.

Market headwinds

Both companies are facing gale-force headwinds in their traditional markets. Sainsbury is losing market share to low-price rivals Aldi and Lidl, and Argos is being battered by e-commerce juggernaut Amazon. Sainsbury, like all the traditional grocers, has seen profits whittled away by the price wars that have sent operating margins falling to 2.71% in H1 2015 from 3.36% five years beforehand. While this decrease has been less than that of competitor Tesco, the Argos deal will do nothing to bring margins on bread and milk back to the level they were at before Aldi and Lidl arrived.

For Argos, operating margins have fallen from 6.7% in 2008 to 3.2% this past year as more and more customers turn to Amazon or other online retailers rather than wander down to an Argos store. The company has done well lately to build an enviable delivery network allowing same-day delivery across much of the UK. However, I find it hard to believe it can compete with Amazon on low prices while maintaining sufficient profitability to make the deal work. And profits 51% lower in 2015 than 2008 back this up.  

Furthermore, while some Argos customers may choose to buy some food at Sainsbury’s when they collect their homeware or electricals purchases, the two chains have very different customer bases. Sainsbury’s bulwark against the low-price sector has thus far been its wealthier customers. But bringing in the lower-end Argos brand risks turning away core customers and diluting that competitive advantage.

At the end of the day, for me the numbers don’t add up: why would combining two struggling retailers somehow create one thriving one? With a huge price tag, little overlap in customer base, and the risk of drawing management’s attention away from fixing the core businesses, I don’t see this deal being one shareholders will look on fondly years from now.

The post Why J Sainsbury Plc’s Purchase Of Home Retail Group Plc Is A Disaster For Shareholders appeared first on The Motley Fool UK.

Home Retail shareholders will receive 0.321 new Sainsbury’s shares, plus a total of 82.8p in cash for each Home Retail share they own.

The cash portion includes a 55p cash payment from Sainsbury. The remainder comes from a 25p payment relating to the £200m sale of Homebase, and a 2.8p final dividend from Home Retail Group. Home Retail shareholders would almost certainly have received these payments anyway.

In total, the offer is worth about £1.4bn, or 170p per Home Retail share. Home shareholders still have to approve the offer at a general meeting, but I don’t think there’s any risk of a revolt.

In my view, this deal is a good result for Home Retail shareholders. Sainsbury’s offer values Home Retail at around 20 times 2016 forecast earnings, which seems ample for a low margin retailer.

What about Sainsbury’s shareholders?

The big question is whether Sainsbury will make a success of integrating the Argos retail and financial services businesses into its own operations.

Sainsbury believes it can make savings worth £160m within three years. According to today’s announcement, the deal will provide benefits in three main areas.

Sainsbury wants to expand its non-food sales and banking businesses. The Tu clothing range is a particular focus. Sales rose to £800m last year and increased by 10% during the first half of the current year. The Argos customer credit business is also attractive. The £550m loan book should fit well with Sainsbury’s Bank and will ultimately be used to help finance this deal.

The supermarket chain also believes it can make big savings on property costs by moving a number of Argos stores into supermarkets when their leases expire. The group has trialled 10 Argos concessions in existing supermarkets for an average of 38 weeks. They’ve found that Sainsbury’s customers welcome the chance to buy non-food goods, while Argos customers like the free parking and easy access.

The final attraction is that Sainsbury believes that Home Retail is “a leader in online and mobile retailing”. Acquiring Home Retail is expected to improve Sainsbury’s online sales and the supermarket’s click and collect and delivery services.

Is Sainsbury a buy?

Sainsbury appears to believe that grocery sales are likely to remain fairly flat for a while, while sales of non-food items and general merchandise provide significant growth opportunities.

Current forecasts suggest that Sainsbury’s post-tax profits will fall next year, while sales remain largely flat. This isn’t ideal, but is diversifying the answer?

I think the truthful answer is that we don’t yet know. This deal should certainly cut the cost of running the Argos store network. I can also see that Sainsbury customers will be happy to pick up items at Argos while they’re in-store.

Sainsbury looked attractive without Home Retail, on a forecast P/E of 12.5 and with a 3.8% yield.

In my view, the worst case scenario is that this acquisition won’t boost sales or profits, which will remain flat. The risk of an outright disaster seems very low. On that basis I’d argue that Sainsbury remains a decent long-term buy.

The post Is J Sainsbury plc A Buy After £1.4bn Home Retail Group Plc Deal Is Confirmed? appeared first on The Motley Fool UK.

The retailer emerged as a shock £1bn target for Sainsbury’s (LSE SBRY) in November, but South Africa’s Steinhoff International got in on the action last month by making a £1.4bn bid for the catalogue specialists.

However, Sainsbury’s has been given free run on Home Retail Group after Steinhoff withdrew its offer late last week, leading the British supermarket to make a formal offer at the same price. The board of Home Retail Group said that it looked forward to “working towards a recommendation.”

Food for thought

Sainsbury’s chairman David Tyler has said that the deal “presents an opportunity to accelerate our strategy, delivering compelling revenue and cost synergies.” He added that “we will create a multi-product, multi-channel proposition with fast delivery networks that we believe will be very attractive to the customers of both businesses.”

Sainsbury’s is looking to reduce its reliance on the ultra-competitive food sector, an arena beset by an increasingly-bloody price war prompted by the fast emergence of low-cost rivals Aldi and Lidl.

And at face value this strategy would appear a sage one. Sainsbury’s saw like-for-like sales edge 0.1% higher in the last quarter, the first such rise for two years and one that was underpinned by strong demand for its non-food items.

Sales of entertainment products and clothing galloped 11% and 10% higher in the period, helped by the successful launch of its latest Gok Wan fashion lines.

Is Argos ‘back’?

But many analysts are concerned that the deal may have given Sainsbury’s too much to do. After all, the supermarket now has to battle to turn around two ailing businesses instead of one.

Sales at Argos have been more encouraging of late — a 1.1% sales decline during the 11 weeks to February 27 marks a vast improvement from the 2.6% slip punched in the year to February 2016.

And Sainsbury’s will be particularly pleased with the catalogue specialist’s improving fortunes in cyberspace, a hot growth segment for the retail industry. Online takings at Argos rose 13% year-on-year in the latest quarter, driven by the popularity of the firm’s new FastTrack same-day delivery and collection service.

Sainsbury’s also hopes that Argos’s rising online popularity — not to mention plans to bring Argos outlets into its supermarkets — will significantly bolster the cross-selling opportunities of its existing products.

Don’t expect miracles

Still, the supermarket has plenty of work in front of it to transform Argos into the digital retailer of choice and take the fight to Amazon. Like the grocery segment, Argos operates in a highly-competitive environment, and the firm needs to offer more than better delivery options to return to sales growth.

Besides, Sainsbury’s still relies on its traditional food business to generate earnings growth, prompting suggestions that the grocer would have done better using the funds to invest in developing its existing operations rather than splashing out on Argos.

While the firm’s diversification strategy certainly makes sense, I believe the headaches are likely to persist at Sainsbury’s thanks to the widescale competition across Britain’s retail sector.

The post Could Home Retail Group Plc Deal Be Key To J Sainsbury plc’s Turnaround? appeared first on The Motley Fool UK.

The post J Sainsbury plc Doesn’t Need Home Retail Group plc To Grow appeared first on The Motley Fool UK.

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 Motley Fool UK.

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 Motley Fool UK.

RBS continues to shed non-core assets such as its private banking arm and completed selling its final stake in the US Citizen’s Bank, further reducing RWAs and shoring-up capital ratios. While there will undoubtedly be further pain ahead for the bank in regards to further restructuring costs and regulatory fines in the US, management has done an admirable job of cleaning up the balance sheet and setting the stage for a return to growth at the state-backed lender. I wouldn’t be calling the bottom for shares yet, but with return on equity at the go-forward bank a solid 13%, there’s obviously room to grow for the group once it’s done cutting out non-performing divisions. With shares trading a price/book ratio of 0.27, compared to 0.91 at much healthier Lloyds, RBS looks like a high-risk, high-reward share that merits further investigation.

The Sainsbury factor

Argos and Homebase parent Home Retail Group (LSE: HOME) shares fell 4% on Friday when it was revealed that negotiations with J Sainsbury about the grocer’s takeover bid weren’t progressing as smoothly as shareholders hoped. With the £340m sale of DIY chain Homebase already lined up, Home Retail Group will be a largely-Argos-driven share if the Sainsbury’s deal doesn’t go through. Argos’s latest results saw same-store sales down 2.2% over the holiday period and full-year profits are expected to be towards the bottom of the already-downgraded £92m to £118m range. With earnings per share half of what they were five years ago and competition from the likes of Amazon not going away any time soon, I would certainly be hoping for the Sainsbury’s deal to go through if I were a shareholder.

Acquisition trail

AstraZeneca (LSE: AZN) has fully embraced the manic pace of acquisitions roiling the pharmaceutical industry and announced or completed some $7bn worth of deals in the final two months of 2015 alone. This shopping spree is necessary to refill the drugmaker’s pipeline as US patents on blockbuster drugs Nexium and Crestor, which account for 35% of revenue, expire by the end of this year. An ambitious target of increasing revenues by well over 50% to $40bn by 2023 will require continued acquisitions and increased R&D spend, which accounted for an estimated 20% of revenue this past year. Shares are certainly not cheap at 17 times 2016 forecast earnings, and the heavy capital expenditure necessary to meet revenue targets makes me view other pharma giants such as GlaxoSmithKline or Shire as more appealing options.

The post Have Royal Bank of Scotland Group Plc, AstraZeneca Plc, And Home Retail Group Plc Been Oversold? appeared first on The Motley Fool UK.