Tuesday tips round-up: Sainsburys, Berkeley Group
Berkeley Group Holdings (The)
4,624.00p
16:40 22/04/24
Food & Drug Retailers
3,791.83
17:14 22/04/24
FTSE 100
8,023.87
17:09 22/04/24
FTSE 250
19,599.39
17:14 22/04/24
FTSE 350
4,408.19
17:14 22/04/24
FTSE All-Share
4,362.60
16:44 22/04/24
Household Goods & Home Construction
12,485.67
17:14 22/04/24
Sainsbury (J)
269.00p
16:40 22/04/24
Sainsbury's full-year dividend pay-out of 17.3p per share is covered almost twice by its earnings. Indeed, the group's chief financial officer thinks the balance sheet is strong, but The Daily Telegraph's Questor team has its concerns. After all, last year's dividend of £320m in cash was part financed by a £222m rise in the company's net debt position. Current market consensus is for a profit margin of 3% in the year ending in March 2016 but a reduction to 1.5% is possible. Hence, a sustainable dividend would be something closer to 8p.
Even if the dividend does not drop that much the direction of travel is still starkly clear. So even though the stock is trading on approximately 10 times forecast earnings - and offering a prospective dividend yield of 5.4% - it still looks like a 'value trap'. "There is little concrete guidance on where the profit and dividend could fall to under new management and until then Questor would rather hold cash." Sell, Questor says.
Berkeley Group is in a class of its own and yet its stock has underperformed that of other housebuilders such as Persimmon, Bellway and Barratt Developments. Arguably, that is because it has the greatest exposure of all to the London market. Nevertheless, and as Shore Capital analyst Robin Hardy has pointed out, historically house price surveys have not had much of an impact on the housebuilders. As well, forecasting house prices is notoriously inaccurate.
Furthermore, the builder has decided to maintain the value of its land bank at £3bn while deciding to return £1.7bn to its shareholders up to 2021 and has no gearing. The firm is a developer of huge trophy projects and as long as it can find the kinds of sites which it needs, which seems reasonable, then the shares are still attractive - offering as they do a dividend yield well in excess of 6%. Buy, says The Times' Tempus.
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