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Hookup updates from Tesco and Sainsbury's

By Chris Bailey | Wednesday 4 July 2018

Disclosure: I own shares in one or more of the stocks mentioned. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from ShareProphets). I have no business relationship with any company whose stock is mentioned in this article.

Time for a food retail update.  I was slightly surprised by the purchasing hookup between Tesco (TSCO) and the French-listed behemoth Carrefour which was announced on Monday.  You all know how loved-up i have been with Tesco over the last little while and - reciprocating my passion - the shares have popped above 240p big technical resistance level in recent weeks as I had hoped (and mused upon here ).  Anyhow, Monday's announcement is no sector ball-breaker but rather part of a search for marginal gains.  
Anyhow, this 3 year global purchasing hook-up has the scope to not only reduce their input costs but also provide a bit of shared know-how, especially as Tesco and Carrefour barely overlap in any global food retail market. Learning from other well-established peers shows an open mindset and given all the structural changes going on in the sector (online growth, discount shops, sector consolidation) it makes a lot of sense. Carrefour could also learn from the recent move of the Tesco share price which, over the last year, is up around 50% whilst that of the French retailer is down about 40%. 
Back to today and the latest update from Sainsbury's (SBRY).  The Q1 trading update showed a like-for-like sales increase of 0.2% which was accompanied by some mumbling about taking market share in household and clothing despite the inevitable 'competitive' market evaluation.  Well at least the like-for-like was positive although at a declining level which continues to show why Sainsbury's felt compelled to do the Asda deal. 
And it is the latter which is the positive elephant in the room. Sainsbury said it had agreed a £3.5 billion financing package 'on attractive terms' to fund the cash element of the Asda transaction which sounds alright.  Clearly there are still a few hurdles to jump over to complete this deal but I think it goes through and with it better margins ultimately for the combination.  More dodgy news for suppliers to the sector...but is shows once again that the big supermarkets are survivors despite all those structural changes out there. 
Trading thoughts?  Still love for Tesco despite the share price romp whilst I await their next update, I cannot get excited about Sainsbury's however as the post deal announcement romp was a bit too much, too fast for me.  As for Carrefour...well if you can buy European stocks, you should.  It reminds me of Tesco's a year ago...

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