Sainsbury Report Final - Merged

J SAINSBURYS PLC
ANALYST EQUITY
REPORT
Volume 1, Issue 1
EQUITY REPORT RESEARCH

EUROPE
STUDENT ID- 1035280, AFSA
16/01/2013
FIVE YEAR SUMMARY

We have suggested a BUY recommendation for Sainsburys
share at 5.32p. Based on the calculation it suggested that Sainsburys share price has been UNDERVALUED and we recommended a BUY due to the Sainsburys potential domestic growth
and expansions within Britain as well as showing encouraging
performance during the 2008-2009 economic crisis.
Performance: During the five year including estimate 2012E financial data, Sainsburys have managed to keep producing increasing rev-
3.51p
19 March 2011
SUMMARY
Recommendation
BUY
Target price ()
5.32
Shares (millions)
1872
ROCE (E2009)
24.71%
Beta
0.62
P/E (E2011)
P/B (E2011)
14.76
1.83
enues and comprehensive income expect in 2009 recording a negative Total sales growth
comprehensive income.
Expansion: Sainsburys borrowings have increased in order to finance their growing company by opening more outlet and also diversification into financial services.
Corporate Responsibility: Customers and other stakeholders have
gained the trust of Sainsburys to act responsibly on their behalf.
Sainsbury's goal is to offer their customers great quality product at a
reasonable price, since the financial crisis customers are more conscientious of how they spend.
Like for like Sales: Sainsburys performance during this period has
been exceptional with their like-for-like sales for the year 2.3%. With
this growth it has enabled the company to maintain a good level of
shareholders return (Year 2011 - Annual Report).
4.9%
Company Overview
Sainsbury is the third largest British retailer in the UK (Telegraph, 2012). Sainsbury became popular by
offering quality dairy products at low prices (Datamonitor 360, 2012) with main strong competitors such
as ASDA, Tesco, Marks and Spencer group and Morrison's. Sainsbury also engages in financial service,
property investments, fuel as well as retailing such as food other household items. Sainsburys have proven to be high successful within the UK with market share of 16.3% (Sainsbury, 2012).
Aim of Report
The main focus of this report is to analyse and interpret the financial statement of Sainsbury for a
four year period (2008-2011) and also forecast their
2012 statements based on analyst reports and assumptions. This is broken down into different parts
for detail breakdown of analysis and interpretation;
The first section will analyse Sainsburys financial position while also looking at their credit
status which will be compared to Tesco plc and
industry average. This will be done with the use
of ROCE and credit status ratios.
The second section involves the use of common

size and trend analyses to forecast Sainsbury
2012 financial statement based on analyst revenue projection report. I will utilise the CAGR
formula to estimate my own judgment of the
Share price movement between Sainsbury's (Blue

Line) and Tesco (Red Line) from 20082011
Throughout the analysis report for the four years

timeline (2008-2011), Tesco Plc will be used as
Sainsbury comparative competitor. The calculated
revenue figure while also comparing it with the
ratios will be used as a comparison medium between
actual 2012 financial statement..
the two companies. In order to draw conclusions
The final section calculates the companys fore-
based on their financial performance over the four
casted value of equity per share at the end of the

2011 with the use of Residual Earnings Model.
J SAINSBURYS PLC
year period.
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Reformulation of Financial Statements

For an effective equity analysis, both Sainsburys and Tescos financial statements (i.e. Balance Sheet,
Cash flow Statement and Income Statement) are reformulated. Reformulation of financial statements requires the separation of financing and operating items in the financial statement. This differs from traditional credit analysis which classifies them into current and long term (Penman, 2010). All in all, reformulation provides the following benefits (Penman, 2011); reformulating also help in distinguish different
components of income such as core operating income from sales, other core operating income, and unusual items, which facilitates forecasting.
Profitability Analysis
Maclaney (2002), states that ratio helps to provide an overview of the business financial condition; it is the
first step of assessing Sainsburys and Tesco in terms of performance, liquidity and solvency. The calculated profit analysis ratios (ROCE break-down) will help us establish Sainsburys and Tesco historic performance over the period (2008 - 2011) -including the economic downturn in 2007-2008.
Ratio analysis for Sainsbury's:
Ratios (Level 1&2)
Abbreviations
Return on Common Equity (%)

Return on Net Operating assets (%)
Operating Profit Margin (%)
Asset Turnover
Financial Leverage (%)
Net Borrowing Cost (%)
ROCE
RNOA
Operating Leverage (%)
OLLEV
PM
ATO
FLEV
NBC
RNOA - NBC
FLEV x (RNOA-NBC)
2008
2009
2010
2011
13.58
10.70
4.23
2.53
42.88
3.98
6.71
287.87
41.89
-9.05
-4.44
-1.54
2.87
50.46
4.71
-9.14
-461.33
49.54
10.33
7.51
2.72
2.76
45.51
1.32
6.19
281.85
47.27
12.41
9.51
3.44
2.76
40.84
2.41
7.10
289.77
45.88
2008
2009
2010
2011
Ratio analysis for TESCO PLC:

Ratios (Level 1 & 2)
Abbreviations
Return on Common Equity (%)
ROCE
21.10
14.40
15.32
16.59
Return on Net Operating assets (%)
RNOA
13.00
7.67
10.58
11.62
Operating Profit Margin (%)
PM
5.33
3.60
4.63
4.94
Asset Turnover
ATO
2.44
2.13
2.28
2.35
Financial Leverage (%)
FLEV
63.00
96.42
69.82
55.71
Net Borrowing Cost (%)
NBC
0.15
0.69
3.79
2.72
RNOA - NBC
12.85
6.98
6.79
8.91
FLEV x (RNOA-NBC)
809.68
673.12
474.16
496.14
OLLEV
50.86
63.59
71.05
73.72
Operating Leverage (%)

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Profitability Analysis (Continued)

ROCE (2008-2011)
25.00
20.00
15.00
10.00
Sainsbury's
% 5.00
Tesco
0.00
-5.00
2008
-10.00
2009
2010
2011
Years
-15.00
Looking at the graph above, it shows that Sainsburys ROCE dipped very low in 2009 compared to Tesco.
This could be due to credit crunch crises which affected the whole economy especially consumer spending's. There are several value drivers ratios that could explain why Sainsburys ROCE fell lower than
Tesco. However, during the recession Sainsbury till managed to hold 16.1% market share compared to the
previous year of 15.8% (Farnham , 2009). Although, Sainsburys generated a negative operating profit of
(292.07) during this period.
Sainsbury ROCE recovered and rose to 12.41% in 2011, which was gradually increased from a negative (9.05%) in 2009.
RNOA ratio for Sainsburys showed a negative -4.44% in 2009. This could be due to having a negative
operating profit because of the economic crises in 2009 which had an adverse effect on the pension
scheme. It resulted in reductions in net operating assets in that year. However, Tescos RNOA ratio has
been more stable over the four year period compared to Sainsburys. In the aftermath of the economic crisis, this made little impact on Tescos financial position due to its highly diversified business. Although,
Tesco suffered losses on their dirty surplus items such as pension scheme and foreign currency translation,
overall it led to a decrease in NOA which relatively led to a low RNOA in 2009. Furthermore, after 2009
both retailers saw growth due to improvements in the economy and thus an increase in consumer confidence.
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Operating Profit Margin (PM)- in 2008, 2010 and 2011 both companies had a stable and positive PM.
But in 2009, Sainsburys had a negative PM which was down to the effect of the economic crisis, this gradually improved by 2010. Regardless of the economic crises both companies still managed to generate increased sales revenue throughout the four year timeline which did not have a major influence on a dramatic
increase in cost of sales.
Several articles revealed that both retailers implemented price war strategic plans between other competing
market share retailers in order to attain a favourable profit margin.
Asset Turnover (ATO) Over the four year period,
ATO (2008-2011)
ATO for both firms has been fairly constant consid-
4.00
ering consumer attitudes towards spending in reces-
3.00
sion. Although in 2009 when the economy per-
%2.00
1.00
Sainsbury's
formed poorly, it had a positive effect on Sains-
Tesco
burys ATO. Compared to Sainsburys in this year,
0.00
2008 2009 2010 2011
Tesco generated a lot more sales revenue than Sainsburys during this period. However, Tesco was less
efficient in using its assets to generate revenue in this year in comparison to Sainsburys and other years.
Sainsburys cash flow statement (Cash Investment (I)) shows that the firm invested in joint venture and
associates - IT services firm (Taylor, 2012) in order to be provide better online services. However, compare
to Tesco who invested heavily on PPE which can be concluded to be their highest investment throughout
the four years. In order to improve efficiency and ATO overall, Tesco should be cautious in what it invests
in during uncertain economic periods. For example, Sainsburys did not invest heavily on operating assets
but rather utilised existing assets. ATO can also be broken down into different levels such as Inventory and
PPE turnover. For the breakdown calculation ATO refer to Appendix 4.1a. On average both Sainsburys
and Tesco have 2.73 and 2.30 ATO respectively.
Net Borrowing Cost (NBC) - on average both Sainsburys and Tesco have 3.11% and 1.83% NBC ratio
respectively. Sainsburys had the highest NBC between 2008-2009, which worsen in 2010 and gradually
improved by 2011. While, Tescos NBC was at its lowest in 2008, which gradually improved by 2010. This
meant that Tesco cost of borrowings dropped, when interest rate decreased to 2.0% in 2008 (HouseWeb,
2012). This suggested that on average Tesco were better strategically by taking advantage of the fall in interest rate by borrowing more compared to Sainsburys who did not make use of the fall in interest rate.
The graph below shows the difference in both companies total borrowing (short term and long term) during
the four year period.
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Total Borrowings (2008-2011)

Axis Title
20000
15000
10000
Sainsbury's
5000
Tesco
0
2008
2009
2010
2011
Years
Operating Spread (SPREAD) (RNOA>NBC) - Both Sainsburys and Tesco had a desirable Operating
Spread over the four year on average (except year 2009), especially in 2011 for Sainsburys and 2008 for
Tesco. In situations when a positive spread is achieved it means the chances of shareholders receiving
greater return are high. This suggests that Tesco and Sainsburys have earned more returns on their Net Operating assets to be able to cover the borrowing costs. Sainsburys obtained a negative NBC in 2009 as
RNOA was less than NBC. Year 2009 was a generally poor economy for both retailers and the general
public, it affected Sainsburys in which a negative Spread of -9.14% was attained. The manager at Sainsbury did not do a good job i.e. a higher costs of borrowing was incurred due to poor decision making during the financial crises in 2009. The managers went over optimum borrowing levels, which meant that all
financial liabilities could not be covered by operating income and also it led to attaining a high gearing ratio (FLEV). This could have been avoided if careful attention was paid to financial liabilities and the borrowings of finance was wrongly timed.
Operating Liability Leverage - Sainsburys have managed to maintain their ratio below 50% while
Tescos ratio shows continuous increase throughout the four year period. Tescos continuous increase
could be due to generated higher operating liabilities and revenues mainly because they have many outlets
compared to Sainsburys. Sainsburys ratio was at its maximum in 2009 and after that it declined.
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Financial Leverage (FLEV) -
Sainsburys is not as geared as Tescos which ratio stood at 96.4% in
2009, while Sainsburys was at 50% for the same year. Tescos high gearing ratio was because of the increase in lending in the wake of low interest rate. Overall, it can be said that Sainsburys were less risky in
comparison to Tesco. One of the main reasons why Tesco was highly geared in 2009 could be due to the
fall in interest rate in the UK. Unfortunately, Sainsburys did not take advance of the fallen interest rate but
rather they played safe in order to avoid huge finance cost due to the uneven market. After 2009, borrowing
for both retailers gradually decrease by a low percentage and this was expected to reduced FLEV - this was
reflected
in
years
2010
&
2011.
Analysis of Credit Status and other performance ratios

For most creditors, they are concerned about a firms ability to meet its short-term and long-term obligations through analysing their liquidity, solvency and operating ratios based on the reformulated financial
statements i.e. income statement. The commonly recognised ratios will be used to analyse the credit and
liquidity status of Sainsburys and its competitor Tescos.
Stock turnover days for both Sainsbury and Tesco have averaged 17 days. Both Sainsburys and Tesco
have managed to maintain a 14days and 20days stock turnover days respectively which are slightly high
but as long as the perishable goods are often rotated. However, both companies also stock domestic items
which are less likely to be influenced by technological changes within their holding period. Overall, both
retailers have managed to keep an eye on the amount of stock by knowing their Economic Order Quantity
(EOQ) which reflected on their steady stock turnover ratios over the four years. Sainsburys better performance on this ratio than its competitor is because they hold less stock than Tesco, which means Tesco
takes longer to replenish its stocks
Debtors Days - Sainsburys have a relatively average of four debtor days for the first three years, which
gradually increased to 5days after the financial crises. Due to Sainsburys policy, majority of their customer transactions are done on a cash basis which means less credit sales are offered to customers. Compared
to Tesco which has increasing debtors days, this could signify that credit sales are offered to customers in
order to generate more revenue. Due to high diversification by Tesco in the market, there is incentive to
increase their debtors to increase customers.
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Analysis of Credit Status/ other performance ratios (Continued)

Sainsburys other ratios
Other Performance Ratios
Debtors Days
Creditors Days
Current Ratio(:1)
Quick Ratio(:1)
Stock Turnover Days
Interest Cover (times)
Gross Profit Margin(%)
Cash Flow to Sales(%)
Cash Flow to Assets(%)
2008
2009
2010
2011
4.22
49.43
0.66
0.40
14.76
4.02
5.62
5.08
8.96
3.76
50.80
0.55
0.31
14.07
4.55
5.48
5.38
10.13
3.93
47.67
0.66
0.41
13.57
4.80
5.42
5.47
10.07
5.93
47.53
0.58
0.31
14.86
7.34
5.50
4.51
8.35
Tescos other ratios

Other Performance Ratios
Debtors Days
Creditors Days
Current Ratio(: 1)
Quick Ratio(t:1)
Stock Turnover Days
Interest Cover (times)
Cash Flow to Assets(%)
2008
2009
2010
2011
10.12
60.82
0.61
0.38
20.31
11.46
7.67
7.83
12.27
12.08
62.08
0.78
0.63
19.44
6.94
7.76
8.43
9.94
12.11
65.89
0.73
0.56
19.04
6.03
8.10
9.40
11.62
13.86
68.49
0.67
0.49
20.66
8.01
8.30
7.36
9.50
Creditors Days - Creditors days for Sainsburys and Tesco reveals that they both obtain payments from
their debtors first before paying their creditors. This should reflect a better working capital for both retailers. In 2009, it took Sainsburys few days longer than average to pay their creditors due to the economic
situation. However, Tescos creditors days continued to rise which meant they took longer to pay their
creditors than Sainsburys after 2009. This could have been the result of a stronger relationship between
Tesco and its suppliers resulting in stronger cash flow statement. Sainsburys suppliers on the other hand,
seems to requests their payment earlier after 2009 - which is reflected on their ratio i.e. decreasing (20092011).
Current Ratio - The higher the current ratio, the more capable the company is of paying its obligations
(Investopedia 2012). Sainsburys and Tesco were able to cover their short-term financial obligations but
the ratio was not strong enough. On average, Sainsburys has (0.61:1) while Tesco had (0.70:1). However,
in 2011 Sainsburys ratio dropped slightly which was below the industry average when industry average
was at 0.60:1(Thomson One Banker, 2013).
Over the four year period, Sainsburys current ratio seems rather unpredictable, while Tescos current ratio
increased from 2008-2010 and later decreased slightly by 2011. The fall in interest rate cause Tescos increased current ratio which led to Tesco borrowing more and having more cash in hand in order to survive
during the financial crises. While Sainsburys utilised their liquidity assets for promotion and marketing
which seemed profitable and generated increased sales revenue, but worsened current ratios.
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Quick Ratio- is an indicator of short term liquidity and also the ability for the companies to meet its short
term obligation without the use of its liquid assets. The ratio calculated for Sainsburys and Tesco show
the ability to both of them surviving without relying on stock (inventory). Sainsburys ratio is rather unstable and unpredictable either it will increase or decrease. Unlike Tesco, thia ratio increased from 2008-2010
and later decreased in 2011. The calculated ratio signifies that on average Tesco relies more on their stock
compared to Sainsburys.
The decline in Sainsburys quick ratio may have resulted from Sainsburys missed opportunities to borrow
funds when interest rates were low, as cash held declined slowly over the four year periods. Moreover in
2011, Sainsburys held the least cash in comparison to other years and also industry average ratio is the ratio the same as Sainsburys ration 0.31:1 (Thomson One Banker, 2013)
Sainsbury's Quick & Current

Ratio
Tesco's Quick & Current

Ratio
0.50
Ratio(:1)
Ratio(:1)
1.00
Quick Ratio
0.00
2008
2009
2010
2011
Current Ratio
1.00
0.50
Quick Ratio
0.00
2008 2009
2010 2011
Current Ratio
Years
Years
Gross Profit - Sainsburys gross profit ratio
Gross Profit Margin
appears to be decreasing from 2008-2010.

But regardless of the decrease in the ratio,
10.00
creasing healthy revenue each year. However,
Sainsburys still managed to maintain in5.00
Sainsbury's
cost of sales also increased which contributed

to the slight decrease in the ratio. On the other hand however, Tescos ratio showed a con-
Tesco
0.00
2008
2009
2010
2011
Years
tinuous increase in its gross profit ratio which
was mainly due to the increase in sales turnover. The fall in Sainsburys ratio could be due to lack of bargaining power in terms of negotiations with their creditors in order to receive better discounts for goods.
Sainsburys ratio in 2011 seems to be above the industry average which was at 6.85. This means on average they are performing okay.
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Cash flow to Assets this ratio helps to measures how well a company is able to generate operating cash
from its current operating activities. Both Tescos and Sainsburys ratios has been unstable over the timeline. The ratio is affected when either of the retailers invests or sells fixed assets or an increase/decrease in
cash from operations. Sainsburys was very efficient in 2009 as Tesco was also in 2008. Nevertheless, in
2011 both retailers total assets were at the highest which made the ratio to fall to its lowest. As a result,
both retailers were not efficient in maximising the full capacity of their assets as less cash was generated
from operations.
Cash flow to Sales the higher the ratio the better, because it indicates the level the companys financial
strength. The ratio also indicates the ability for both Sainsburys and Tesco to translate their sales into cash
(proportion of cash from operations in overall sales).
Both companies experienced an improvement in the ratio up until 2010. The decrease in 2011 was due to
both companies experiencing a decrease in cash from operations as sales continued to rise. I personally
think that the increased rate at which Tesco offered credit sales to their customers might have had an adverse impact on the ratio.
Interest Cover - A high interest cover ratio means that a business can easily meet its interest obligations
from profits (Bized, 2012). The ratio tells how easily Sainsburys and Tescos can pay interest on their
outstanding debts. Sainsburys had much lower interest cover in comparison to Tescos over the four year
timeline. Which means Tesco can cover their interest debt many times than Sainsburys. For example,
Tesco were able to cover their interest twelve times in 2008 while Sainsbury could only cover theirs four
times. Again, based on the financial crisis in 2009 Tescos ratio decreased, this could also be due to increase in borrowings while Sainsburys ratio still gradually increased from 2008 - 2011. A lower interest
cover could mean danger to a business, but luckily
Interest Cover
Sainsbury ratio peaked in 2011 mainly because Sains14.00
burys finance cost was at its lowest during this period.
12.00
Overall, Sainsburys ratio was much lower than

total borrowings (short and long term borrowings) in
Times
Tescos, this could be due to Sainsburys have a lower
10.00
8.00
Sainsbury
6.00
Tesco
4.00
comparison to Tescos . It is still uncertain why Sains-
2.00
burys borrowed lesser amount when they could have
0.00
2008
2009
2010
2011
taken the advantage of a reduce interest rate at 0.5%.
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Forecasting and Share Price Valuation

This part aims to explain how Sainsburys forecasted equity share price was arrived at the end of the fourth
year (2011). Based on my evaluation, the calculated value of Sainsburys share might help investors into
making the right decision on either to buy, sell or hold Sainsburys shares.
By using Residual Earnings Model which is the most commonly used model by analyst (Investopedia,
2012) , the share price calculated by using this model will be compared to the actual share price of Sainsburys as at 19th March 2011.
In order to calculate my own estimation of 2012s revenue, I made use of the Compound Annual Growth
Rate (CAGR) - RBS (analysts) use the same method for forecasting (Scarborough, 2012).
I chose to use this model for forecasting 2012 revenue and used the common size and trend analysis to
forecast
the
rest
of
the
income
statement.
The formula accounts for growth rate changes from year to year (4.29%) which was later multiplied with
2011 revenue in order to arrive at my own predictions of 2012 revenue figure - which was close to the actual and other analyst revenue figures. The analyst revenue figures includes macro-economic factors such
as cost of inflation, but these predictions varies from analyst to analyst so it can tend to be subjective.
CAGR Model Rate
4.29%
Year 2011 Revenue
21102
CAGR Model Revenue
22007
Analyst Revenues
RBS
22540
Evolution Securities Plc
22085
Santander
22325.6
My predicted Revenue was quite close to the actual 2012 Revenue (22,294 m). The next stage was to
gather twenty four years worth of Sainsburys share prices and FTSE ALL SHARE price index
(Appendix 1.3a). I was able to calculate the return index for both Sainsburys and FTSE ALL SHARE.
This enabled to arrive at a beta by using the regression analysis tool.
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Forecasting and Share Price Valuation Continuation

ANOVA
df
Regression
Residual
Total
Intercept
X Variable 1
SignifiSS
MS
F
cance F
1 0.260358339 0.260358 52.47244 4.03E-12
287 1.424039673 0.004962
288 1.684398012
Coeffi- Standard ErLower

Upper
cients
ror
t Stat
P-value
95%
95%
0.001231 0.004166711 0.295457 0.767858 -0.00697 0.009432
0.618599 0.085397227 7.243787 4.03E-12 0.450515 0.786684
Lower
95.0%
-0.00697
0.450515
Upper
95.0%
0.009432
0.786684
By using a regression analysis tool I was able to arrive at Sainsburys Beta which was later used in conjunction with CAPM to
calculate Sainsburys Cost of Equity.
CAPM can be described as a model that describes the relationship between risk and expected return and that is used in pricing risky securities (Investopedia, 2013)
(Investopedia, 2013)
Through this method (CAPM) I was able to arrive at Sainsburys cost of equity at 7.58%. The true worth
of a companys share price is very important to shareholder and other stakeholders (such as investors) in
order to aid them in buying or selling shares.
The calculated forecasted value of equity per share was estimated based on Evolution Security Plc (analyst)
forecasted revenue estimate and the actual 2011 data. The Residual Earning Model has been used to value Sainsburys share price as at the end of March 2011. Three different assumptions have been put into perspective when using this formula to calculate the earnings per share. While calculating the third case perspective (Case 3), 0.7% economic GDP was used since retailer industry has been growing in line with the
economy which was at 0.7% in 2011 (BBC, 2012).
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Forecasting and Share Price Valuation Continuation

Valuation : Residual Earnings (RE) Model
2011 (m)
E2012 (m)
Reformulated Income statement

Operating income
726.48
773.11
-53.48
-51.87
673.00
721.24
Net financial expenses

Comprehensive income (included the amount for MI)
Reform. Balance Sheet

Net operating assets
7639.00
Net financial obligations

Ordinary shareholders' equity (included MI)
2215
5424.00
310.1
Residual Earnings
Case 1: Assume that RE after 2012 would be zero because of strong competition in the industry.
5712.25
Intrinsic value of BT's equity in 2011
3.05
Intrinsic per share value (s)
1.05
Intrinsic P/B
8.49
Intrinsic P/E
Case 2: if it assumes that REs after 2012 will remain as 310.1 forever.
Intrinsic P/B
Intrinsic P/E
Case 3:Assuming the growth rate is 0.7% based on the economy GDP
Intrinsic P/B
Intrinsic P/E
9515.04
5.08
1.75
14.14
9931.28
9931.28
5.31
1.83
14.76
Additional information:
Share price of Sainsbury on 19 March 2011 is 3.51, source: Sainsbury's Annual Report
Therefore, the market over values Sainsbury's share
From my calculation Cost of Equity is 7.58%
No. of shares outstanding is 1872 million, from Sainsbury 2010/2011 annual report.
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Analyst Share Price Assumption

Evolution Securities this analyst initiated a Reduce because Sainsburys did not deliver the total sales
growth target of 8% but rather they achieved 7.5%. And also the analyst believe that with Sainsburys underling growth which were currently unimpressive, in addition with market deterioration and growth rate
getting weaker due to inflation. Evolution urges investors to sell Sainsburys shares at a target price of
350p.
Santander However, this analyst suggested a Hold of Sainsburys share at target price of 400p due to
Sainsburys attaining three times growth on non-food items which driven by Sainsburys opening new outlets in order to boost sales. This means that management strategies have proven to be successful and can be
seen in the foreseeable future.
RBS finally, RBS suggested a Hold at the target price of 370p. This is due to Sainsburys performing very
well in the third quarter or 2011. Although sales growth target are not been achieve, RBS are positive
Sainsburys can have continuous development in their business model.
SUMMARY
The Residual Earnings Model suggests that Sainsburys share price should be currently at a value of 5.31.
In comparison to the actual share price of 3.51 as at 19th March 2011. The estimated share price is different from the actual which means that the market has undervalued Sainsburys shares. Residual earnings
model assumes three different cases in calculating the share price of Sainsburys.
RBS suggested that investors should Hold on the bases that the share price is likely to increase between the
financial year of 2010-2013 and with EPS CAGR of 10%.
In conclusion, the market has undervalued Sainsburys share and I believe that it has the potential to rise
to the target price of 5.31. I would advice investors to buy and hold.
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APPENDICES 1.1 SWOT ANALYIS OF J SAINSBURYS

Strengths
Weaknesses
Significant market presence in the UK
Robust portfolio of own-labelled products
Concentration of operations in the UK could affect

the performance in case of any unfavourable economic scenario
Strong results in tough economic and macro environment
High debt burden
Opportunities
Threats
Growth opportunities in the Chinese and Indian

economies
Rising labour cost in the UK
Weak consumer spending in the UK
Growth potential in the online distribution channel
Intense competition
Rise in demand for organic foods
Datamonitor 360 (2012)
APPENDICES 1.2 INDUSTRY AVERAGE AS AT 19TH MARCH 2011

Industry Benchmark Ratio analysis :
Credit Status Ratios
2011
Stock Turnover Days
23.00
Current Ratio (to 1)
0.60
Quick Ratio (to 1)
0.31
Debtors Days
11.48
6.85
5.66
Thomson One Banker, (2013)
J SAINSBURYS PLC
ID: 1035280
Page 15
APPENDIX 1.3a
DATASTREAM DATA OF SAINSBURY AND FTSE ALL SHARE RETURNS
Start
19/02/1987
End
Frequency
Name
19/03/2011
M
SAINSBURY (J) PRICE - LNGBP
FTSE
ALL
SHARE PRICE
INDEX
Code
926002(P.LNGBP)
FTALLSH
CURRENCY
19/02/1987
235.31
960.83
19/03/1987
244.14
994.65
19/04/1987
234.33
979.12
19/05/1987
260.81
1103.1
19/06/1987
284.34
1137.25
19/07/1987
279.43
1234.49
19/08/1987
257.86
1120.81
19/09/1987
274.26
1188.42
19/10/1987
232.37
1074.58
19/11/1987
224.53
824.11
19/12/1987
218.65
867.07
19/01/1988
223.55
902.5
19/02/1988
212.76
889.24
19/03/1988
232.37
951.46
19/04/1988
241.2
925.79
19/05/1988
218.65
909.69
19/06/1988
220.61
956.27
19/07/1988
218.65
961.03
19/08/1988
213.74
961.62
19/09/1988
197.57
912.59
19/10/1988
202.96
968.26
19/11/1988
199.04
951.59
19/12/1988
189.23
913.05
19/01/1989
207.86
985.45
19/02/1989
228.94
1058.89
19/03/1989
217.66
1076.71
19/04/1989
225.51
1076.35
19/05/1989
237.27
1131.41
19/06/1989
260.81
1103.16
19/07/1989
259.82
1170.28
19/08/1989
281.4
1204.75
19/09/1989
279.43
1198.2
19/10/1989
247.08
1100.15
19/11/1989
250.02
1115.15
19/12/1989
253.94
1168.64
19/01/1990
256.88
1169.46
19/02/1990
257.86
1147.05
Return
0.037525
-0.04018
0.113003
0.090219
-0.01727
-0.07719
0.0636
-0.15274
-0.03374
-0.02619
0.02241
-0.04827
0.09217
0.038
-0.09349
0.008964
-0.00888
-0.02246
-0.07565
0.027281
-0.01931
-0.04929
0.098452
0.101414
-0.04927
0.036065
0.052148
0.099212
-0.0038
0.083058
-0.007
-0.11577
0.011899
0.015679
0.011578
0.003815
Return
(FTALLSH)
0.035198734
-0.015613532
0.126623907
0.030958209
0.085504506
-0.092086611
0.060322445
-0.09579105
-0.233086415
0.052128963
0.040861753
-0.014692521
0.069969862
-0.026979589
-0.017390553
0.051204256
0.004977674
0.000613925
-0.050986876
0.061002203
-0.01721645
-0.040500636
0.079294672
0.074524329
0.016828944
-0.000334352
0.051154364
-0.024968844
0.060843395
0.02945449
-0.005436813
-0.08183108
0.013634504
0.047966641
0.00070167
-0.01916269
19/03/1990
256.88
1111.57
19/04/1990
247.08
1085.2
19/05/1990
266.69
1117.16
19/06/1990
273.55
1168.35
19/07/1990
296.1
1171.71
19/08/1990
285.32
1065.7
19/09/1990
298.06
1000.73
19/10/1990
301.99
1010.12
19/11/1990
290.22
1009.06
19/12/1990
302.97
1046.13
19/01/1991
307.87
1006.8
19/02/1991
322.58
1115.14
19/03/1991
340.22
1197.98
19/04/1991
362.77
1220.16
19/05/1991
370.62
1188.02
19/06/1991
339.24
1194.88
19/07/1991
368.88
1213.66
19/08/1991
349.05
1216.23
19/09/1991
351.03
1253.48
19/10/1991
354.01
1252.83
19/11/1991
327.23
1190.42
19/12/1991
346.07
1146.78
19/01/1992
362.93
1213.08
19/02/1992
365.91
1216.45
19/03/1992
375.82
1186.78
19/04/1992
420.44
1268.47
19/05/1992
463.58
1312.07
19/06/1992
464.07
1248.12
19/07/1992
445.23
1168.05
19/08/1992
434.33
1122.95
19/09/1992
426.89
1204.37
19/10/1992
472.01
1206.68
19/11/1992
486.88
1284.33
19/12/1992
547.87
1333.41
19/01/1993
554.31
1330.19
19/02/1993
516.13
1387.47
19/03/1993
520.6
1421.34
19/04/1993
462.09
1387.43
19/05/1993
455.15
1393.51
19/06/1993
479.94
1422.43
19/07/1993
454.16
1408.73
19/08/1993
511.67
1521.01
19/09/1993
446.23
1494.29
19/10/1993
405.57
1545.92
19/11/1993
387.72
1533.12
19/12/1993
446.23
1640.19
19/01/1994
473
1743.78
19/02/1994
362.93
1703.02
19/03/1994
384.75
1624.88
-0.0038
-0.03815
0.079367
0.025723
0.082435
-0.03641
0.044652
0.013185
-0.03897
0.043932
0.016173
0.04778
0.054684
0.066281
0.021639
-0.08467
0.087372
-0.05376
0.005673
0.008489
-0.07565
0.057574
0.048718
0.008211
0.027083
0.118727
0.102607
0.001057
-0.0406
-0.02448
-0.01713
0.105695
0.031504
0.125267
0.011755
-0.06888
0.008661
-0.11239
-0.01502
0.054466
-0.05372
0.126629
-0.12789
-0.09112
-0.04401
0.150908
0.059991
-0.23271
0.060122
-0.03093152
-0.023723202
0.029450792
0.045821547
0.002875851
-0.090474605
-0.060964624
0.00938315
-0.00104938
0.036737161
-0.03759571
0.107608264
0.074286637
0.018514499
-0.026340808
0.005774314
0.015717059
0.002117562
0.030627431
-0.000518556
-0.049815218
-0.03665933
0.057814053
0.002778053
-0.024390645
0.068833314
0.034372118
-0.048739778
-0.064152485
-0.038611361
0.072505454
0.001918015
0.064350118
0.038214478
-0.002414861
0.043061518
0.024411339
-0.023857768
0.004382203
0.020753349
-0.009631405
0.079702995
-0.017567274
0.034551526
-0.008279859
0.069837977
0.063157317
-0.023374508
-0.045883196
19/04/1994
355.99
1582.94
19/05/1994
390.7
1571.99
19/06/1994
413.01
1515.01
19/07/1994
396.65
1540.95
19/08/1994
436.31
1598.16
19/09/1994
432.34
1543.64
19/10/1994
395.65
1524.39
19/11/1994
417.47
1554.22
19/12/1994
395.16
1505.86
19/01/1995
416.48
1503
19/02/1995
413.5
1505.8
19/03/1995
423.91
1513.96
19/04/1995
413.5
1556.15
19/05/1995
435.81
1605.78
19/06/1995
441.27
1654.2
19/07/1995
459.12
1674.67
19/08/1995
465.56
1728.26
19/09/1995
455.15
1745.57
19/10/1995
419.45
1757.31
19/11/1995
378.8
1769.5
19/12/1995
363.92
1754.28
19/01/1996
413.5
1831.99
19/02/1996
382.76
1843.95
19/03/1996
372.85
1835.38
19/04/1996
358.47
1924.17
19/05/1996
382.76
1901.77
19/06/1996
388.71
1883.36
19/07/1996
370.86
1841.45
19/08/1996
402.59
1908.96
19/09/1996
371.85
1957.02
19/10/1996
353.01
1987.45
19/11/1996
362.43
1954.08
19/12/1996
375.82
1979.85
19/01/1997
393.17
2061.07
19/02/1997
313.35
2121.75
19/03/1997
325.74
2115.4
19/04/1997
324.26
2092.44
19/05/1997
363.92
2211.91
19/06/1997
358.96
2210.2
19/07/1997
424.91
2284.14
19/08/1997
437.3
2317.83
19/09/1997
443.75
2362.31
19/10/1997
461.6
2480.18
19/11/1997
472.5
2285.91
19/12/1997
484.9
2361.28
19/01/1998
499.28
2467.54
19/02/1998
449.7
2647.24
19/03/1998
502.75
2797.33
19/04/1998
477.96
2777.16
-0.07475
0.097503
0.057103
-0.03961
0.099987
-0.0091
-0.08486
0.05515
-0.05344
0.053953
-0.00716
0.025175
-0.02456
0.053954
0.012528
0.040451
0.014027
-0.02236
-0.07844
-0.09691
-0.03928
0.136239
-0.07434
-0.02589
-0.03857
0.06776
0.015545
-0.04592
0.085558
-0.07636
-0.05067
0.026685
0.036945
0.046166
-0.20302
0.03954
-0.00454
0.122309
-0.01363
0.183725
0.029159
0.01475
0.040225
0.023614
0.026243
0.029656
-0.0993
0.117968
-0.04931
-0.025811137
-0.006917508
-0.03624705
0.017121999
0.037126448
-0.034114231
-0.012470524
0.019568483
-0.031115286
-0.001899247
0.001862941
0.005419046
0.027867315
0.031892812
0.03015357
0.012374562
0.032000334
0.010015854
0.006725597
0.006936739
-0.0086013
0.044297376
0.00652842
-0.004647631
0.048376903
-0.011641383
-0.009680456
-0.022252782
0.036661327
0.025176012
0.015549151
-0.01679036
0.013187792
0.04102331
0.029441019
-0.002992813
-0.010853739
0.057096022
-0.000773088
0.033453986
0.014749534
0.019190363
0.049896076
-0.078328992
0.032971552
0.045001016
0.072825567
0.056696786
-0.007210447
19/05/1998
511.18
2794.62
19/06/1998
515.64
2726.87
19/07/1998
525.06
2882.73
19/08/1998
529.52
2646.95
19/09/1998
540.43
2354.83
19/10/1998
569.19
2348.1
19/11/1998
510.68
2567.36
19/12/1998
460.6
2607.39
19/01/1999
431.85
2730.74
19/02/1999
363.18
2764.7
19/03/1999
359.46
2847.18
19/04/1999
411.52
3010.25
19/05/1999
407.06
2911.37
19/06/1999
381.77
3028.03
19/07/1999
386.98
3030.3
19/08/1999
406.81
2886.03
19/09/1999
409.29
2846.58
19/10/1999
373.34
2799.26
19/11/1999
315.58
3033.78
19/12/1999
326.24
3150.24
19/01/2000
349.05
3069.72
19/02/2000
288.31
2948.99
19/03/2000
251.37
3126.18
19/04/2000
304.67
2937.83
19/05/2000
337.89
2892.43
19/06/2000
298.72
3095.44
19/07/2000
306.41
3102.86
19/08/2000
322.27
3143.84
19/09/2000
361.44
3084.07
19/10/2000
366.9
2977.26
19/11/2000
424.41
3085.5
19/12/2000
409.54
3009.03
19/01/2001
338.14
2992.06
19/02/2001
381.77
2944.93
19/03/2001
369.87
2688.78
19/04/2001
390.7
2818.19
19/05/2001
421.44
2860.21
19/06/2001
422.43
2753.8
19/07/2001
425.4
2628.57
19/08/2001
385.49
2590.61
19/09/2001
366.9
2272.17
19/10/2001
349.79
2406.13
19/11/2001
373.84
2578.75
19/12/2001
347.31
2478.95
19/01/2002
372.85
2487.99
19/02/2002
404.58
2461.12
19/03/2002
392.18
2571.43
19/04/2002
394.66
2548.05
19/05/2002
386.23
2537.41
0.069504
0.008725
0.018269
0.008494
0.020604
0.053217
-0.1028
-0.09807
-0.06242
-0.15901
-0.01024
0.144828
-0.01084
-0.06213
0.013647
0.051243
0.006096
-0.08784
-0.15471
0.033779
0.069918
-0.17402
-0.12813
0.212038
0.109036
-0.11593
0.025743
0.051761
0.121544
0.015106
0.156746
-0.03504
-0.17434
0.129029
-0.03117
0.056317
0.078679
0.002349
0.007031
-0.09382
-0.04822
-0.04663
0.068756
-0.07097
0.073537
0.085101
-0.03065
0.006324
-0.02136
0.006286998
-0.02424301
0.057157107
-0.081790525
-0.110360982
-0.002857956
0.093377624
0.015591892
0.047307844
0.012436189
0.029833255
0.057274215
-0.03284777
0.040070482
0.000749662
-0.047609148
-0.013669297
-0.016623457
0.083779285
0.038387754
-0.025559957
-0.03932932
0.060084978
-0.06024925
-0.015453583
0.07018666
0.002397074
0.01320717
-0.019011782
-0.034632807
0.036355575
-0.024783666
-0.005639691
-0.015751689
-0.086979996
0.048129635
0.014910279
-0.037203562
-0.045475343
-0.014441312
-0.122920856
0.058956856
0.07174176
-0.038700921
0.003646705
-0.010799883
0.044821057
-0.009092217
-0.004175742
19/06/2002
347.06
2270.73
19/07/2002
317.32
1995.47
19/08/2002
325.25
2128.84
19/09/2002
308.89
1852.07
19/10/2002
268.98
1973.16
19/11/2002
290.54
1966.6
19/12/2002
267.74
1850.02
19/01/2003
244.93
1844.77
19/02/2003
225.84
1762.53
19/03/2003
235.01
1803.22
19/04/2003
232.53
1867.76
19/05/2003
257.32
1915.87
19/06/2003
256.83
2018.05
19/07/2003
260.79
2002.16
19/08/2003
288.31
2099.84
19/09/2003
290.79
2111.57
19/10/2003
271.7
2155.15
19/11/2003
295.75
2138.58
19/12/2003
300.21
2175.41
19/01/2004
289.55
2244.62
19/02/2004
296
2253.94
19/03/2004
294.76
2209.84
19/04/2004
277.65
2264.9
19/05/2004
272.45
2217.22
19/06/2004
277.4
2238.01
19/07/2004
257.5
2157.19
19/08/2004
257.5
2166.93
19/09/2004
278
2281.88
19/10/2004
249
2308.58
19/11/2004
270.5
2370.35
19/12/2004
266
2352.37
19/01/2005
272.5
2422.06
19/02/2005
300.5
2534.73
19/03/2005
293.5
2476.21
19/04/2005
291.25
2434.24
19/05/2005
290.75
2472.76
19/06/2005
284.25
2544.59
19/07/2005
280
2600.39
19/08/2005
283.25
2661.32
19/09/2005
283.5
2724.41
19/10/2005
277.5
2587.2
19/11/2005
288.5
2765.34
19/12/2005
309
2803.53
19/01/2006
305.25
2888.41
19/02/2006
318.75
2979.74
19/03/2006
330
3062.18
19/04/2006
341
3102.69
19/05/2006
331
2884.1
19/06/2006
324.75
2865.1
-0.10142
-0.08569
0.024991
-0.0503
-0.1292
0.080155
-0.07847
-0.08519
-0.07794
0.040604
-0.01055
0.10661
-0.0019
0.015419
0.105526
0.008602
-0.06565
0.088517
0.01508
-0.03551
0.022276
-0.00419
-0.05805
-0.01873
0.018168
-0.07174
0
0.079612
-0.10432
0.086345
-0.01664
0.024436
0.102752
-0.02329
-0.00767
-0.00172
-0.02236
-0.01495
0.011607
0.000883
-0.02116
0.03964
0.071057
-0.01214
0.044226
0.035294
0.033333
-0.02933
-0.01888
-0.105099294
-0.121220929
0.066836384
-0.130009771
0.065380898
-0.003324616
-0.059279976
-0.002837807
-0.044580083
0.023086132
0.035791528
0.025758127
0.053333473
-0.007873938
0.04878731
0.00558614
0.020638672
-0.00768856
0.017221708
0.031814692
0.00415215
-0.019565738
0.024915831
-0.021051702
0.009376607
-0.036112439
0.004515133
0.053047399
0.011700878
0.026756708
-0.007585378
0.029625442
0.046518253
-0.023087272
-0.016949289
0.015824241
0.029048513
0.021928877
0.023431101
0.023706281
-0.050363198
0.06885436
0.013810237
0.030276116
0.031619472
0.027666843
0.013229137
-0.070451769
-0.006587844
19/07/2006
334
2932.45
19/08/2006
359.5
3001.06
19/09/2006
372.75
2982.91
19/10/2006
395.25
3149.97
19/11/2006
410.5
3184.87
19/12/2006
408.25
3206.5
19/01/2007
434.25
3229.02
19/02/2007
512.75
3340.86
19/03/2007
557
3220.5
19/04/2007
530
3345.25
19/05/2007
556
3449.69
19/06/2007
581
3436.71
19/07/2007
592
3433.75
19/08/2007
520.5
3128.97
19/09/2007
554
3319.35
19/10/2007
582
3355.25
19/11/2007
408
3135.95
19/12/2007
425.5
3192.35
19/01/2008
399.5
3003.52
19/02/2008
381.5
3053.21
19/03/2008
325
2840.75
19/04/2008
379.5
3090.06
19/05/2008
366.25
3243.48
19/06/2008
322.5
2905.97
19/07/2008
298.5
2735.72
19/08/2008
326.75
2710.74
19/09/2008
370.25
2708.98
19/10/2008
250.5
2050.84
19/11/2008
289.25
1998.02
19/12/2008
321
2141.1
19/01/2009
332.5
2061.15
19/02/2009
336.75
2019.72
19/03/2009
308.5
1931.04
19/04/2009
311.5
2096.6
19/05/2009
346
2285.23
19/06/2009
317.25
2211.91
19/07/2009
316
2239.52
19/08/2009
313.2
2405.57
19/09/2009
335.1
2658.01
19/10/2009
330.1
2715.26
19/11/2009
331.9
2695.15
19/12/2009
316
2653.36
19/01/2010
339.5
2815.68
19/02/2010
333.4
2741.54
19/03/2010
333.1
2891.94
19/04/2010
344.8
2940.74
19/05/2010
323
2662.27
19/06/2010
331.7
2711.62
19/07/2010
346.4
2658.05
0.028483
0.076347
0.036857
0.060362
0.038583
-0.00548
0.063686
0.180771
0.086299
-0.04847
0.049057
0.044964
0.018933
-0.12078
0.064361
0.050542
-0.29897
0.042892
-0.0611
-0.04506
-0.1481
0.167692
-0.03491
-0.11945
-0.07442
0.09464
0.133129
-0.32343
0.154691
0.109767
0.035826
0.012782
-0.08389
0.009724
0.110754
-0.08309
-0.00394
-0.00886
0.069923
-0.01492
0.005453
-0.04791
0.074367
-0.01797
-0.0009
0.035125
-0.06323
0.026935
0.044317
0.023507033
0.023396818
-0.006047863
0.056005713
0.011079471
0.006791486
0.007023234
0.034635896
-0.036026652
0.038736221
0.031220387
-0.003762657
-0.000861289
-0.088760102
0.060844303
0.01081537
-0.065360256
0.017984981
-0.059150782
0.016543922
-0.06958578
0.087762035
0.049649521
-0.104057987
-0.05858629
-0.009131051
-0.000649269
-0.24294753
-0.0257553
0.071610895
-0.037340619
-0.020100429
-0.043907076
0.085736184
0.089969474
-0.032084298
0.012482425
0.074145353
0.104939786
0.02153867
-0.007406289
-0.01550563
0.061175265
-0.026331117
0.054859677
0.016874486
-0.094693853
0.018536813
-0.019755718
19/08/2010
356.9
2690.81
19/09/2010
385.4
2844.71
19/10/2010
383.1
2947.99
19/11/2010
366.8
2959.82
19/12/2010
372.1
3044.15
19/01/2011
380.8
3103.83
19/02/2011
384
3154.1
19/03/2011
351
2973.64
0.030312
0.079854
-0.00597
-0.04255
0.014449
0.023381
0.008403
-0.08594
0.012324825
0.057194674
0.036305985
0.004012904
0.028491597
0.019604816
0.016196119
-0.057214419
APPENDIX 1.3b
REGRESSIONANALYSIS
SUMMARY OUTPUT
Regression Statistics
Multiple R
0.393155
R Square
0.154571
Adjusted R Square
0.151625
Standard Error
0.07044
Observations
289
ANOVA
Regression
Residual
Total
Intercept
X Variable 1
Significance
df
SS
MS
F
F
1 0.260358339 0.260358 52.47244
4.03E-12
287 1.424039673 0.004962
288 1.684398012
Standard
Coefficients
Error
t Stat
P-value
0.001231 0.004166711 0.295457 0.767858
0.618599 0.085397227 7.243787 4.03E-12
Upper
Lower 95%
95%
-0.00697 0.009432
0.450515 0.786684
Lower
95.0%
-0.00697
0.450515
Rf (given)
equity beta x Mkt risk premium
Calculation: cost of
equity, ke
CAPM
4.20%
ke
equity beta
0.618599293
Mkt risk premium

0.0546
0.033776
7.58%
Share Price 19th 2011
Issued Shares
3.51
1872millions
Market value of ordinary shares: 351x1872 million = 6570.72 million

Net financial obligation
= 2215 million
Upper
95.0%
0.009432
0.786684
APPENDIX 2.1
COMMON SIZE AND TREND ANALYSIS FOR SAINSBURYS IN PERCENTAGE
2008
m
2008
m
2009
m
2009
m
2010
m
2010
m
2011
m
2011
m
Operating Income
100
Revenue
Cost of sales
-0.94
Administrative Expenses
Operating Income from Sales
(before tax)
-0.03
Tax on Ordinary Activities
106.0212
-94.52
-0.97
-2.22
99.03
111.9247
-94.5802
-96.7426
-2.00
3.257363
118.3046
-94.5029
-96.5788
-1.98
3.42
3.52
-0.01
-0.94
-0.74
-0.89
Tax on Other Income
0.00
0.08
0.04
0.14
Tax on Financial Items
0.00
-0.14
-0.16
-0.11
Total Operating Tax

Operating Income from Sales (After
tax)
Other Operating Income (before
tax)
-0.01
-0.99
-0.86
-0.85
0.02
-0.01
0.00
0.00
Other Income
0.00
0.30
0.14
0.51
Less: Tax
Share of Post-Tax loss from Joint
Ventures
Other Operating Income (After tax)
Dirty Surplus Items of Operating
Activities
Actuarial gains on defined benefit
pension schemes
Less Tax impact on above item
0.00
-0.08
-0.04
-0.14
0.00
-0.59
0.69
0.28
Operating Income
-96.479
0.00
-0.37
0.79
0.65
0.03
-4.77
-0.87
0.14
-0.01
1.34
0.24
-0.01
0.04
-3.81
0.16
0.77
Less: Financing expense (income):

Finance expense
-0.01
-0.78
-0.74
-0.54971
Finance Income
0.00
0.27
0.17
0.15
0.00
-0.51
-0.58
-0.40
0.00
0.14
0.16
0.11
Less: Tax benefit
0.00
-0.36
-0.41
-0.29
Dirty Surplus Items of Financial

Activities:
Available-for-sale financial assets:
Group
Joint ventures
Cash flow hedge: Group
0.00
-0.08
0.22
0.07
0.00
0.00
0.05
Cash flow hedge: Joint Venture
0.00
-0.17
Share based payment

Less: Tax on the above components
of other comprehensive income
Comprehensive Income to Ordinary
Shareholders
0.00
0.00
0.00
0.02
-0.5
0.12
0.01
-0.02
-0.04
0.01
-0.06
-0.15
-0.01
-0.25
0.04
-2.1
2.57
3.19
0.04
-2.1
2.57
3.19
APPENDIX 2.2a
SAINSBURYS REFORMATED INCOME STATEMENT FOR THE PERIODS 2008 2011
2008
2008
2009
2009
2010
2010
2011
2011
Operating Income
Revenue
Cost of sales
17837
-16835
-502
Operating Income from Sales (before tax)

Tax on Other Income
18911
-17875
-17337
-420
500
19964
-18882
-18295
-399
616
21102
-19942
-19281
-417
683
743
-150
-177
-148
-187
16.074
7.56
30.24
-14.7
-27.072
-32.2
-23.52
Total Operating Tax

Operating Income from Sales (After tax)
-20359
-155.7
-187.998
-172.64
-180.28
344.3
428.002
510.36
562.72
Other Operating Income (before tax)

Other Income
30
57
27
108
Less: Tax
-9
-16.074
-7.56
-30.24
Share of Post-Tax loss from Joint Ventures

-2
-111
138
60
Dirty Surplus Items of Operating Activities

Actuarial gains on defined benefit pension
schemes
Operating Income
19
-70.074
157.44
137.76
542
-903
-173
29
-151
253
48
-3
754.3
-292.072
542.8
726.48

Finance expense
Finance Income
Less: Tax benefit
-132
-148
-148
83
52
33
-116
-49
-96
-115
-84
14.7
27.072
32.2
23.52
-34.3
-68.928
-82.8
-60.48
-31
-16
43
14
24
-3
-8
32
Dirty Surplus Items of Financial Activities:

Available-for-sale financial assets: Group
Available-for-sale financial assets: Joint ventures
48
2
-58
Share based payment

Less: Tax on the above components of other
comprehensive income
Total Comprehensive Income(to Ordinary Shareholders)
-10
-1
9
-
-32
-84.3
-103.928
-11
-29.8
-3
-53.48
670
-396
513
673
670
-396
513
673
APPENDIX 2.2b
TESCO'S REFORMATED INCOME STATEMENT FOR THE PERIODS 2008 2011
2008
2008
2009
2009
2010
2010
2011
2011
Operating Income
Revenue
Cost of sales
47298
54327
56910
60931
-43668
-50109
-52303
-55871
-1027
-1248
-1527
-1676
-44695
-51357
-53830
-57547
2603
2970
3080
3384
-673
-788
-840
-864
Tax on Other Income
56.4
105.56
119.56
-18.9
66.55
102.08
Total Operating Tax

-87.92
-93.24
-635.5
-823.53
-822.36
-837.68
1967.5
2146.47
2257.6
2546.32

Profit arising from Property-related items
Less: Tax
188
236
377
427
-56.4
-66.55
-105.56
-119.6
Loss from operating activities

Share of post-tax profits of joint ventures and associates
75
110
33
57
206.6
279.45
304.44
364.44
38
-275
343
-344
187
-629
-322
595
54
-153
Dirty Surplus Items of Operating activities

Foreign currency translation differences
Total gain/Loss on defined benefit pension scheme
Tax relating to Components of other C.Income
Tax on item taken directly to equity
123
Total Other operating Income

Operating Income
435
554.6
-189.55
379.44
462.44
2522.1
1956.92
2637.1
3008.76
Less: Financial Expense

Finance cost
Finance Income
Less: Tax
-250
-478
-579
-483
187
116
265
150
-63
-362
-314
-333
18.9
-44.1
102.08
33
-259.92
87.92
-226.08
93.24
-239.76
Dirty Surplus Items of Financing activities

Change/Loss on revaluation of available-for-sale investments
Reclassified and reported in Group Income Statement
-4
-29
Fair value Movements of Cash flow hedges
66
-334
505
Total Comprehensive Income

Minority Interest
Comprehensive Income to ordinary shareholders
174
-168
2
8
-162
-22
-12
2511
1871
2249
2757
-11
-1
-27
-11
2500
1870
2222
2746
APPENDIX 2.3a
SAINSBURYS REFORMULATED GROUP BALANCE SHEET FOR THE PERIOD 2009-2012
2008
m
2008
2009
m
2009
m
2010
m
2010
m
2011
m
2011
m
Operating Assets (OA)

Property Plant and Machinery
7424
7821
8203
8784
Intangible Assets
165
160
144
151
Investment in Joint Venture
148
288
449
502
55
45
36
36
Other Receivables
Retirement Benefit Assets
495
Inventories
681
Non-current assets held for sale
112
21
56
13
Trade and Other Receivables
206
195
215
343
Cash and cash equivalents
719
689
10005
627
702
9846
837
812
10642
501
11142
Less: Operating Liabilities (OL)

Trade and other payables
2280
2488
2466
2597
Current Provisions
10
19
13
11
Non-current Provisions
63
57
66
62
Taxes Payable
191
202
200
201
Other Payables
89
92
106
120
321
95
144
172
Deferred income tax liability

Retirement benefit obligation
2954
Net Operating Assets(NOA)
309
7051
3262
421
6584
3416
340
7226
3503
7639
Financial Assets (FA)

Available for Sales
Non-current derivative financial instruments
Current derivative financial instruments
Less: Financial Obligations (FO)

Current Derivatives Financial Instrument
liabilities
Non-Current Derivatives Financial Instrument
liabilities
Borrowings: amount falling due within 1 year
Borrowings: amount falling due after more
than 1 year
106
4
97
150
176
31
20
29
59
43
187
213
257
7161
6771
7439
7896
56
41
18
118
154
73
2084
52
110
2226
Net Financial Obligations (NFO)
2116
Non- Controlling Interest (NCI)
Common Shareholders' Equity (CSE)
4935
2177
2395
2208
4376
2357
59
74
2473
2339
2472
2260
2215
4966
5424
APPENDIX 2.3b
TESCO PLC REFORMULATED GROUP BALANCE SHEET
2008 2008
m
m
Operating Assets (OA)
Goodwill and other Intangible Assets
Property, Plant and Equipment
Investment Property
Investment in Joint Ventures and Associates
Other Investments
Deferred tax assets
Inventories
Trade and Other Receivables
Current Tax Assets
Cash
Less: Operating Liabilities (OL)
Trade and other payables
Customer Deposits
Current Tax liabilities
Non-current Provision
Current Provision
Post-employment benefit Obligation
Deferred tax Liabilities
Other non-current payables
Deposits by banks
Net Operating Assets (NOA)
Financial Assets (FA)
Non-Current Derivative Financial InstrumentsAssets
Current Derivative Financial InstrumentsAssets
Non-Current Loans and Advances to customers
Current Loans and Advances to customers
Current Loans and Advances to banks and
other financial assets
Short-term Investments
Cash and Cash equivalents
Non-current assets classified as held for sale
Less: Financial Obligations
Borrowings: amount falling due within 1 year
Borrowings: amount falling due after more
than 1 year
Current Derivative Financial Instruments- and
other Liabilities
Liabilities of the disposal group classified as
held for sale
Non-Current Derivative Financial Instrumentsand other Liabilities
Net Financial Obligation (NFO)
Non-Controlling Interests
Common Shareholders' Equity (CSE)
2336
19787
1112
305
4
104
2430
1311
6
1542
28937
7277
455
23
4
838
802
42
9441
19496
2009 2009 2010 2010

m
m
m
m
4027
23152
1539
62
259
21
2669
1798
9
2112
8522
4538
362
67
10
1494
696
68
24
35648
15781
19867
4177
24203
1731
152
863
38
2729
1888
6
2062
9442
4357
472
172
39
1840
795
30
37849
17147
20702
2011 2011
m
m
4338
24398
1863
316
1108
48
3162
2314
4
1785
10484
5074
432
113
64
1356
1094
36
216
1478
1250
1139
97
382
1470
1918
224
1844
2268
148
2127
2514
2129
1233
1397
398
144
1314
757
373
404
1022
85
431
360
246
308
1227
20723
10405
30272
8174
28876
2084
4059
1529
1386
5972
12391
11744
9689
443
525
146
255
322
8821
11902
87
11815
302
17277
12995
57
12938
776
14195
14681
85
14596
600
39336
18653
20683
7870
28553
11930
16623
88
16535
APPENDIX 3.1a
SAINSBURY'S REFORMATED CASHFLOW STATEMENT FOR THE PERIODS 2008- 2011
2008
m
2008
2009
2009
2010
2010
2011
2011
m
Cash from Operating Activities ( C )

Cash generated from operations
Corporation Tax paid
Tax on Interest
998
1206
-64
-28.2
1206
-160
-92.2
Dividend Received
-32.43
-89
-192.43
905.8
905.8
Cash Investments (I)

Acquisition of and investment in
Subsidiaries
1138
-26.04
-158
-115.04
1016.57
-28.89
-186.89
1092.96
1016.57
1092.96
952.11
-7
-10
-973
-966
-1036
-1136
Proceeds from disposal of PPE & other

Assets
198
390
139
282
Proceeds from Sale of Intangible Asset
Purchase of PPE
Purchase of intangible assets
-6
Invested in joint ventures and

associates
-31
Cost of disposal of Operations
-1
Free Cash Flow C - I
-15
-2
-887
85.8
-11
-291
-820
-1
-10
952.11
129.57
-2
-910
-872
182.96
80.11
Financial Flow to Claimants (F)

Interest Paid
123
128
111
126
Interest Received
-29
-13
-18
-19
94
115
93
107
Tax On Interest
-28.2
65.8
Investment in Financial Assets
Repayments of Long-term Borrowing
-32.43
82.57
36
30
74
61
-235
-45
Proceeds from Long-term borrowing
-152
Proceeds from Short-term borrowing
-43
Repayments of Short-term Borrowing
-164
Total Debt Financing
-43
Dividends Paid
178
-59.2
-2
-73.43
145
85.8
235
-73.43
-15
10
36
-59.2
Equity Financing (d)

Proceeds from Issuance of ordinary
shares
Total Financing Flow (F+d)
78.11
50
Total Equity Financing
-28.89
10
Capital Redemption
66.96
Interest elements of Obligations under

Finance Leases payments
Repayment of capital element of
obligations under finance lease
payment
Increase/Decrease in Cash
-26.04
11
191.96
-334
191.96
-171.89
-250
218
241
-17
269
-
203
129.57
-171.89
-9
182.96
252
80.11
APPENDIX 3.1b
TESCO'S REFORMATED CASHFLOW STATEMENT FOR THE PERIODS 2008- 2011
2008
m
2008
m
2009
m
2009
2010
m
2010
m
2011
m
2011
m
Cash from Operating Activities ( C )

Cash generated from operations
4099
Corporation Tax paid
-346
Tax on Interest
-84.6
Dividend Received
Effect of foreign exchange rate changes
4978
5947
-456
-430.6
-133.104
-589.104
88
-55
5366
-512
-170.52
-760
-682.52
69
3701.4
120
3701.4
-136.08
-896.08
35
4577.896
49
4577.896
62
5348.48
-46
5348.48
4485.92
4485.92
Cash Investments (I)

Acquisition of Subsidiaries
Proceeds from sale of joint ventures and
associates
-169
-1275
Proceeds from sale of subsidiary
Purchase of PPE and Investment Property

Proceeds from sale of PPE
Proceeds from Sale of Intangible Asset
-4487
-2855
-3178
1056
994
1820
1906
-220
-163
-373
-158
Invested in joint ventures and associates
-61
Free Cash Flow C - I
-2774
-30
927.4
Financial Flow to Claimants (F)

Increase in loans to joint ventures
-89
-3442
-
Purchase of intangible assets
-65
-5018
-4
-440.104
-1263
-174
4085.48
36
242
45
219
360
-
1233
1918
1264
Decrease in loans to joint ventures
-25
Investments in short-term investments

Proceeds from sale of short-term Investments
Interest Paid
Interest Received
Tax On Interest
Increase in borrowings
Repayments of Borrowing
New Finance Leases
Repayments of Obligations under Finance
Leases
Increase/Decrease in Cash
-360
410
-1233
562
-1314
690
614
-128
-90
-81
-128
282
472
609
486
-84.6
197.4
-133.104
338.896
-170.52
438.48
-136.08
349.92
-9333
-7387
-862
-2175
7593
2733
-
3601
4153
-119
32
746
Total Debt Financing

Equity Financing (d)
Ordinary shares issued for cash
18
-487.6
1721
-487.6
-138
41
-1461.104
-690
-1461.104
42
3258.48
-949
3258.48
-130
-167
-98
-16
Dividends Paid
792
883
968
1081
Own Shares Purchased

Other Adjustments
Total Equity Financing
Total Financing Flow (F+d)
775
-
265
24
1564.92
1564.92
Proceeds from sale of ordinary share

capital to minority interests
Dividends Paid to Minority Interest
-1905
2580.92
31
1415
1021
827
1016
927.4
-440.104
4085.48
2580.92
APPENDIX 3.2a
ANALYST FORECAST AND MY PREDICTIONS
RBS
Evolution Security PLC
Own
Outcome
Santander
2012
2012
2012
2012
2012
2012
2012
2012
Operating Income
Revenue
22540
Cost of sales
22085
-21301
Operating Income from Sales (before
tax)
-445.417
-199.743
-21746.368
-436.425
793.63
Tax on Other Income

22325.6
-20871
22007.67
-21098.3
-21307.3886
-441.18
777.61
-20797.88
-21539.52
-434.90
786.08
-195.711
774.89
-197.843
-195.03
29.99
29.39
29.71
29.29
-23.3283
-22.8574
-23.11
-22.78
Total Operating Tax

Operating Income from Sales (After
tax)
-21232.78
-193.08
-189.18
-191.24
-188.52
600.55
588.43
594.84
586.37

Other Income
Less: Tax
Share of Post-Tax loss from Joint
Ventures
115.3597
113.031
114.2624
112.64
-29.99
-29.39
-29.71
-29.29
64.09
62.79
63.48
62.58

Dirty Surplus Items of Operating
Activities
Actuarial gains on defined benefit
pension schemes
Operating Income
149.45
146.44
148.03
145.93
30.98
30.35
30.68
30.24
8.05
7.89
7.98
7.86
789.04
773.11
781.53
770.40

Finance expense
Finance Income
Less: Tax benefit

Dirty Surplus Items of Financial
Activities:
Group
Available-for-sale financial assets: Joint
ventures
Share based payment
Less: Tax on the above components of
other comprehensive income
Total Comprehensive Income(to
Ordinary Shareholders)
-123.905
-121.404
-122.73
-120.98
34.18
33.49
33.86
33.37
-89.72
-87.91
-88.87
-87.61
23.33
22.86
23.11
22.78
-66.40
-65.06
-65.76
-64.83
14.95
14.65
14.81
14.60
2.14
2.09
2.12
2.09
-8.55
-8.37
-8.46
-8.34
2.14
2.09
2.12
2.78
-52.94
2.09
2.72
-51.87
2.75
-52.43
-3.13
-57.53
736.10
721.24
729.10
712.88
736.10
721.24
729.10
712.88
APPENDIX 3.2b
SAINSBURYS 2012 ACTUAL OUTCOME
ACTUAL
OUTCOMES
2012
2012
m
m
Operating Income
22294
Revenue
-21083
-419
Cost of sales
-21502
792
-201
21.32
-26.78

Tax on Other Income
-206.46
585.54
Total Operating Tax

82
-21.32
28
Other Income
Less: Tax
Share of Post-Tax loss from Joint Ventures

Dirty Surplus Items of Operating Activities
88.68
Actuarial gains on defined benefit pension schemes
-222
68
520.22
Operating Income
Finance expense
-138
35
-103
26.78
-76.22
Finance Income
Less: Tax benefit
Dirty Surplus Items of Financial Activities:

Available-for-sale financial assets: Group
1
2
Available-for-sale financial assets: Joint ventures


Share based payment
Less: Tax on the above components of other comprehensive
income
Total Comprehensive Income(to Ordinary Shareholders)
2
2
-69.22
451
451
APPENDIX 4.1a
Ratio analysis for Sainsbury's:
Ratios (Level 3)
2008
Asset Turnover (ATO) Drivers:

PPE Turnover
Inventory Turnover
Account Receivable Turnover
Other Asset Turnover
Account Payable Turnover
Other Liabilities Turnover
1/ATO
2009
0.42
0.04
0.01
0.09
0.13
0.04
0.40
0.41
0.04
0.01
0.06
0.13
0.04
0.35
2010
0.41
0.04
0.01
0.08
0.12
0.05
0.36
2011
0.42
0.04
0.02
0.06
0.12
0.04
0.36
APPENDIX 4.1b
Ratio analysis for TESCO PLC:
Ratios (Level 3)
2008
2009
2010
2011
Asset Turnover (ATO) Drivers:
PPE Turnover
Inventory Turnover
Accounts Receivable Turnover
Other Assets Turnover
Accounts Payable Turnover
Other Liability Turnover
1/ATO
0.42
0.05
0.03
0.12
0.15
0.05
0.41
0.43
0.05
0.03
0.26
0.16
0.14
0.47
0.43
0.05
0.03
0.24
0.17
0.15
0.44
0.40
0.05
0.04
0.25
0.17
0.14
0.42
12 January 2011
Price/Target:
390p/350p
Mkt Cap:
7,470m
Net Cash/(Debt) (FY1)
Mar
2010A
PBT
EPS (p)
DPS (p)
P/E (x)
-2,706m
2011E
2012E
610
654
727
23.3
25.1
27.0
14.2
15.3
16.6
16.8x
15.5x
14.4x
600
Sainsburys
Reduce
(SBRY.L)
What lies beneath

On the surface, headline Q3 LFL sales growth of 3.6% appears attractive.
But, the underlying figures are much less impressive, reflect the industry
slowdown and suggest that momentum is slowing. Most noticeably, the
substantial extension program and last Januarys VAT rise are clouding
the underlying trends. Stripping out these impacts, reported 3.6% expetrol LFLs would fall to c1.5%, suggesting flattish volumes. With
underlying growth unimpressive, margin expansion limited and the
industry outlook deteriorating, we see no reason why Sainsburys should
command a 20% 2012 PE premium to the sector. We urge caution and
rate the stock a Reduce with a 350p target price.
550
500
450
400
350
300
250
200
Jan 06 Jul 06 Jan 07 Jul 07 Jan 08 Jul 08 Jan 09 Jul 09 Jan 10 Jul 10 Jan 11
Source: FactSet Estimates
Price
Price Relative to FTSE 100
Results: Sainsburys delivered total sales growth of +7.5% slightly shy of our
+8% estimate. Excluding petrol, total sales growth of 6.0% was also a touch
behind our 6.5% forecast. LFLs of +3.6% were broadly in line. Although 3.6%
headline growth appears higher than Morrisons 1%, we note that on the same
definition, the growth rates are broadly similar.
Extension impact: With over 300k sq ft of extensions in this quarter (550k year
to date), the underlying LFL picture is clouded by the inclusion of this additional
space in LFLs. Sainsburys explained this extra space contributed c1% to growth.
Last quarter extensions contributed 0.3% to LFL sales and going forward the
impact will be even greater than the c1% reported today.
Industry outlook: Management were unequivocal in explaining the pervasive

impact of inflation and on their concerns for the consumer outlook. They echoed
Kantar in talking about a boost to non-food sales over Christmas as consumers
moved away from the High Street due to accessibility and the adverse weather.
This shift could cloud the underlying picture and see January sales disappoint as
consumers revert back to the High Street.
Valuation: With industry concerns mounting and growth rates weaker than
management suggest, Sainsburys 20% 2012 PE premium cannot be justified on
fundamentals. We do not expect corporate activity to emerge and consequently,
the balance of risk lies firmly to the downside. Reduce, 350p target price.
Dave McCarthy
Year End Mar

Sales (m)
EBITDA (m)
EVO PBT (m)
EPS (p)
DPS (p)
Growth PBT (%)
Growth EPS (%)
P/E (x)
EV/Sales (x)
EV/EBITDA (x)
Yield (%)
2008A
17,837
1,016
434
16.0
12.0
+28%
+32%
24.4x
0.5x
9.0x
3.1%
2009A
18,911
1,084
519
20.5
13.2
+20%
+28%
19.1x
0.5x
8.6x
3.4%
2010A
19,964
1,150
610
23.3
14.2
+18%
+14%
16.8x
0.5x
8.4x
3.6%
2011E
21,047
1,263
654
25.1
15.3
+7%
+8%
15.5x
0.5x
8.1x
3.9%
+44 (0)20 7071 4715

dave.mccarthy@evosecurities.com
Andrew Porteous
+44 (0)20 7071 4441
andrew.porteous@evosecurities.com
The company has reviewed a draft of this

research note and factual changes have been
made
EVO Securities makes markets in Sainsburys

This publication was produced by Evolution Securities Limited (ESL). This publication is disseminated in the EEA
by ESL. This publication is disseminated in the US by Evolution Securities US (ESUS); it has not been altered in
any way by ESUS prior to distribution. ESUS is a wholly owned subsidiary of ESL. Under the Markets in Financial
Instruments Directive and the Financial Services Authoritys Conduct of Business Rules, this document is a
marketing communication and has not been prepared in accordance with legal requirements designed to promote
the independence of investment research. Although it is not subject to any legal requirement prohibiting dealing
ahead of the dissemination of investment research, Evolution Securities Ltd upholds this standard through its
internal systems and controls.
2012E
22,085
1,359
727
27.0
16.6
+11%
+8%
14.4x
0.5x
7.8x
4.2%
Produced by: The Royal Bank of Scotland N.V.
12 January 2011
Hold
Target price
3.70
Price
3.90
Equity |
United
Kingdo
m|
Food &
Drug
Retailer
s
Sainsbury (J)
Good 3Q sales - as expected
Sainsbury reported a good 3Q11 sales performance although this had been
expected. The trading and consumer environment is likely to remain challenging
in 2011 but we believe that Sainsbury's business model (just like its UK peers), is
strong enough to cope and to grow.
Sainsbury has reported 3Q11 sales covering the 14 weeks to January 8 with total sales up by
7.5% or by 6% excluding fuel.
Lfl sales growth inc fuel was +5.4% but ex fuel and inc VAT lfl grew by 3.6%, which compares
to our forecast of 4%. We believe that ex VAT (80bp) and adjusting for the extra week of
trading in the quarter (30-40bp), lfl ex fuel and ex VAT rose by 2.3-2.4%.
Extensions are likely to have contributed at least 50bp to the lfl sales performance.
New space contributed 2.4% to sales growth (ex fuel) which compares to our 2.5% forecast.
Total Non-Food sales grew at three times the rate of food and we estimate that this means
that Non-Food grew sales by c15% and Food by 5%. Seasonal, Clothing, Home, Electrical
and entertainment all contributed strongly to the non-food growth rate while at the same time
Sainsbury's Online and Convenience businesses 'continued to perform well'.
The outlook statement is as we had expected, with Sainsbury being 'well placed to make
continued good progress in 2011' despite the challenging consumer environment.
We like Sainsbury and we are positive on the continued development of its business model
and indeed, we forecast FY10-FY13 EPS CAGR of 10% and over the same period, and
despite over 3bn of capex forecast by us, we expect after-tax ROIC to increase by 90bp
from a lowly 6.8% in FY10 to 7.7% by FY13. Thus, while we forecast annual incremental
after-tax returns of 12-13%, our FY13 ROIC is still just close to Sainsbury's cost of capital.
We changed our recommendation on the shares from Buy to Hold in September 2010 as the
share price had achieved our 370p price target. One area where our forecasts could be wrong
is the in-store EBIT margin, which we currently forecast to rise by 60bp between FY10-FY13
and to put this into context, each incremental 10bp on top of our FY13F in-store EBIT margin
is worth on an NPV basis, around 8p per share to our valuation.
With the shares trading on a CY11F PE and EV/EBITDAR of 13.9x and 9.3x respectively, we
do not see much, indeed if any, near-term scope for further multiple expansion. these
valuations compare to Morrison's trading on 11.0x and 6.4x and Tesco on 11.8x and 8.5x
respectively.
Analysts
Justin Scarborough
The conference call starts at 8.45am.
+44 20 7678 0748

justin.scarborough@rbs.com
Mark Irvine-Fortescue
+44 20 7678 2602
mark.irvine-fortescue@rbs.com
John Guy
+44 20 7678 3665
john.guy@rbs.com
Kate Heseltine
+44 20 7678 9085
kate.heseltine@rbs.com
250 Bishopsgate, London, EC2M
4AA, United Kingdom
http://research.rbsm.com
Important disclosures can be found in the Disclosures Appendix.
Income statement
m
FY09A
FY10A
FY11F
FY12F
FY13F
Revenue
Cost of sales
Operating costs
EBITDA
DDA & Impairment (ex gw)
EBITA
Goodwill (amort/impaired)
EBIT
Net interest
Associates (pre-tax)
Other pre-tax items
Reported PTP
Taxation
Minority interests
Other post-tax items
Reported net profit
Tot normalised items
Normalised EBITDA
Normalised PTP
Normalised net profit
18911
-14577
-3250
1084
-468.0
616.2
n/a
616.2
-89.0
15.7
-77.0
465.9
-177.0
0.00
0.00
288.9
-79.0
1084
518.9
367.9
19964
-15372
-3442
1150
-479.0
671.0
n/a
671.0
-103.4
18.4
147.0
733.1
-148.3
0.00
0.00
584.8
148.8
1150
610.1
436.0
21320
-16484
-3591
1246
-492.7
753.1
n/a
753.1
-99.7
20.7
26.4
700.4
-210.1
0.00
0.00
490.3
21.6
1246
671.1
468.7
22540
-17396
-3778
1365
-520.0
845.5
n/a
845.5
-95.3
23.9
28.9
803.1
-240.9
0.00
0.00
562.2
28.2
1365
766.7
533.9
23793
-18333
-3989
1471
-548.0
922.7
n/a
922.7
-89.5
27.5
33.7
894.3
-268.3
0.00
0.00
626.0
37.4
1471
848.2
588.6
Source: Company data, RBS forecasts
year to Mar
Balance sheet
m
Cash & market secs (1)
Other current assets
Tangible fixed assets
Intang assets (inclgw)
Oth non-curr assets
Total assets
Short term debt (2)
Trade &oth current liab
Long term debt (3)
Oth non-current liab
Total liabilities
Total equity (incl min)
Total liab&sh equity
Net debt
FY09A
FY10A
FY11F
FY12F
FY13F
627.0
964.0
7821
191.0
430.0
10033
210.0
2709
2185
553.0
5657
4376
10033
1768
837.0
1016
8203
164.0
640.5
10860
114.0
2679
2359
742.5
5894
4966
10860
1636
837.0
1150
8654
151.0
635.0
11427
114.0
2835
2532
757.6
6238
5189
11427
1809
837.0
1223
9073
138.0
649.4
11921
114.0
2985
2559
801.1
6459
5462
11921
1836
837.0
1298
9467
125.0
648.8
12376
114.0
3139
2530
832.4
6615
5761
12376
1807
year ended Mar
Cash flow statement

m
EBITDA
Change in working capital
Net interest (pd) / rec
Taxes paid
Other oper cash items
Cash flow from ops (1)
Capex (2)
Disposals/(acquisitions)
Other investing cash flow
Cash flow from invest (3)
Incr / (decr) in equity
Incr / (decr) in debt
Ordinary dividend paid
Preferred dividends (4)
Other financing cash flow
Cash flow from fin (5)
Forex& disc ops (6)
Inc/(decr) cash (1+3+5+6)
Equity FCF (1+2+4)
Lines in bold can be derived from the immediately preceding lines.

Sainsbury (J) | Key Financial Data | 12 January 2011
FY09A
FY10A
FY11F
FY12F
FY13F
1084
163.0
-115.0
-160.0
16.0
988.2
-976.0
81.0
n/a
-895.0
18.0
169.0
-218.0
n/a
0.00
-31.0
-61.0
1.19
12.2
1150
89.0
-93.0
-89.0
-6.00
1051
-1047
103.0
n/a
-944.0
252.0
78.0
-241.0
n/a
0.00
89.0
3.90
199.9
4.02
1246
21.5
-99.0
-210.1
66.9
1025
-1005
77.0
n/a
-928.2
0.00
172.7
-267.4
n/a
0.00
-94.8
0.00
2.00
19.8
1365
77.5
-93.7
-240.9
80.5
1189
-1007
82.1
n/a
-924.9
0.00
27.6
-289.5
n/a
0.00
-261.9
0.00
2.00
181.9
1471
78.6
-84.8
-268.3
88.2
1284
-1013
86.9
n/a
-926.4
0.00
-29.5
-326.5
n/a
0.00
-356.0
0.00
2.00
271.1
year to Mar
European Equity Research FLASHNOTE
United Kingdom Food & Drug Retailers

January 12, 2011
SAINSBURY
HOLD
CURRENT PRICE: GBP390
TARGET PRICE: GBP400
Solid 3Q10 Sales

Jaime Vzquez
Borja Olcese
(+34) 91 289 5436

javazquez@gruposantander.com
(34) 91 289 1853

fdolcese@gruposantander.com
Sainsbury has published good 3Q sales but already anticipated by the strong Kantar numbers
yesterday. This period covers 14 weeks to Jan 8 and therefore numbers are not fully comparable
with Morrisons or Tescos as the trading periods differ (the latter two are for six weeks only).
LFL ex-fuel but including VAT (and IFRIC 13 compliant) reached 3.6% or 2.8% ex-VAT,
compared to Morrisons published 1.0% ex-VAT. However, Morrison faced comps 220bp
tougher while Sainsburys base was 90bp easier than in the preceding period. In fact, the
two-year ex-VAT growth rate has decelerated slightly from 7.7% in 2Q to 7.0% in 3Q
while Morrisons accelerated from 5.6% in 3Q to 7.5% in the Christmas period. Sainsburys
LFL includes to a much greater extent than Morrisons the benefit of more space opened the
year before maturing and the benefit of extensions (90bp). Inflation is seen at 1.5-2.0% in
the quarter, up c50bp from 2Q.
New space contribution: 2.4% after 2.3% in 2Q. This compares with Morrisons 2.1% with
less space growth, the reason being that about 40% of the new space is devoted to lower
density non-food business. The company reiterates its FY new space guidance of 1.5mn sq ft.
Non-food growth was three times that of food, driven by openings and store extensions,
which is the medium-term aspiration for the company to justify the investment. The company
did not provide an indication of pure LFL growth.
Guidance: management sees no basis for consensus to move estimates up from the current
PBT of GBP660mn. We are not changing our GBP665mn estimate.
Recommendation: Sainsbury has best-in-class management, in our view, and very strong
trading momentum which we believe is sustainable as there is plenty to catch up with on food
sales densities and also as non-food is being successfully rolled out in stores being extended. Top
line momentum is key as operational leverage is high (low EBIT margin, low sales densities). The
valuation premium, however, relative to Morrison looks excessive to us. The stock trades on 8.9x
lease adj 2011E EV/EBITDAR vs Morrisons 6.4x and Tescos 7.6x. The capitalisation of leases
under proposed new accounting rules in a couple of years time should make this valuation gap
more visible to the market. Reiterate Hold.
Company Data, January 11, 2011

Sales (GBP mn)
EBITDA (GBP mn)
EPS
P/E (x)
EV/EBITDA (x)
GDY (%)
2009/10
19,964.0
1,150.0
24.99
15.6
7.8
3.48
2010/11E
20,943.0
1,226.0
25.98
15.0
7.6
3.37
2011/12E
22,325.6
1,324.0
27.69
14.1
7.3
3.57
2012/13E
23,701.7
1,442.4
30.98
12.6
6.9
3.89
Reuters/Bloomberg codes
Market cap. (GBP mn)
Number of shares (mn)
Free float (%)
Av. daily volume (GBP mn)
52-week range (GBp)
4Q sales due
Source: Company data and Santander Investment Bolsa estimates.
US investors enquiries should be directed to Santander Investment Securities Inc. (SIS) at (212) 692-2550.
US recipients should note that this research was produced by a non-member affiliate of SIS and,
in accordance with NASD Rule 2711, limited disclosures can be found on the back cover.
SBRY.L / SBRY LN
7,433.0
1,903.9
60.0
18.82
356-395
23 March
References
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http://www.bbc.co.uk/news/business-18977084 [Accessed on 22nd December, 2012]
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Farnham J. (2009). Recession bites into eating habits. [Online] Available at
http://news.bbc.co.uk/1/hi/business/8124352.stm. [Accessed on 10th December, 2012]
HouseWeb, (2012) UK Interest Rate. [Online] Available at
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Investopedia, (2012).Definition of 'Current Ratio.[Online] Available at
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on 18th December, 2012]

Investopedia, (2013a). Valuing A Company Using The Residual Income Method.
[Online] Available at http://www.investopedia.com/articles/fundamental-
analysis/11/residual-income-model.asp#axzz2H49nREtB [Accessed on 04 January 2013]

Investopedia, (2013b).Capital Asset Pricing Model CAPM [Online] Available at
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[Accessed on 04 January, 2013]
Maclaney, E and Atrill, P. 2002.Accounting: An Introduction. 2nded. London:Prentice Hall.
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Graw Hill
Sainsburys, (2012) About US. Available at http://www.j-sainsbury.co.uk/about-us/ [Accessed on 18th
November, 2012]
Sainsburys (2012) Annual Report 2008-2012. London: J Sainsburys
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Collection. RBS (London), Birmingham Library.
Taylor P. (2012) IT makeover delivers strategic advantage. [Online] Available at
http://www.ft.com/cms/s/0/ba0441f4-83ea-11e1-9d54-00144feab49a.html#axzz2I5IQgqMv
[Accessed 14th December, 2012]
Tesco, (2012).Annual Report 2008-2012. Hertfordshire: Tesco
Telegraph (2012). Sainsbury's customers turning to convenience stores and online. [Online] Available
Athttp://www.telegraph.co.uk/finance/newsbysector/retailandconsumer/9678814/Sainsbur
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Sainsbury Report Final - Merged

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J SAINSBURYS PLC

EQUITY REPORT RESEARCH

STUDENT ID- 1035280, AFSA

FIVE YEAR SUMMARY

The second section involves the use of common

Share price movement between Sainsbury's (Blue

Throughout the analysis report for the four years

revenue figure while also comparing it with the

ratios will be used as a comparison medium between

actual 2012 financial statement..

the two companies. In order to draw conclusions

The final section calculates the companys fore-

based on their financial performance over the four

casted value of equity per share at the end of the

Reformulation of Financial Statements

Return on Common Equity (%)

Operating Leverage (%)

Ratio analysis for TESCO PLC:

Return on Common Equity (%)

Return on Net Operating assets (%)

Operating Profit Margin (%)

Financial Leverage (%)

Net Borrowing Cost (%)

Operating Leverage (%)

Profitability Analysis (Continued)

Profitability Analysis (Continued)

ATO for both firms has been fairly constant consid-

ering consumer attitudes towards spending in reces-

sion. Although in 2009 when the economy per-

formed poorly, it had a positive effect on Sains-

burys ATO. Compared to Sainsburys in this year,

Profitability Analysis (Continued)

Total Borrowings (2008-2011)

Profitability Analysis (Continued)

Sainsburys is not as geared as Tescos which ratio stood at 96.4% in

Analysis of Credit Status and other performance ratios

Analysis of Credit Status/ other performance ratios (Continued)

Tescos other ratios

Analysis of Credit Status/ other performance ratios (Continued)

Sainsbury's Quick & Current

Tesco's Quick & Current

Gross Profit Margin

appears to be decreasing from 2008-2010.

creasing healthy revenue each year. However,

Sainsburys still managed to maintain in5.00

cost of sales also increased which contributed

tinuous increase in its gross profit ratio which

Analysis of Credit Status/ other performance ratios (Continued)

Sainsbury ratio peaked in 2011 mainly because Sains14.00

burys finance cost was at its lowest during this period.

Overall, Sainsburys ratio was much lower than

Tescos, this could be due to Sainsburys have a lower

comparison to Tescos . It is still uncertain why Sains-

burys borrowed lesser amount when they could have

taken the advantage of a reduce interest rate at 0.5%.

Forecasting and Share Price Valuation

CAGR Model Rate

Year 2011 Revenue

CAGR Model Revenue

Evolution Securities Plc

Forecasting and Share Price Valuation Continuation

Coeffi- Standard ErLower

Forecasting and Share Price Valuation Continuation