So goes the strapline of the latest J Sainsbury advertising campaign, which its chief executive Justin King is certainly taking to heart.
He has asked investors for £445m on Wednesday morning (via a capital raise and convertible bond) so Sainsbury can take advantage of opportunities in the real estate market. A sort of food retailing property vulture fund if you like.
From today’s press release. (Emphasis ours)
Sainsbury’s has a strong balance sheet which is well supported by significant property assets and long-term debt. The capital raising announced today will maintain this strong position and give the Company the financial flexibility to increase its capital expenditure to £2 billion over the two years to March 2011.
This will enable Sainsbury’s to open extra space in the next two years, adding at least 15 per cent gross space, equating to 2.5 million sq ft of additional selling area, by March 2011 through:
Acquiring additional freehold and long leasehold sites to open more new stores and to further develop the pipeline of future store openings, taking advantage of current opportunities in the property market;
Speeding up the development of the store estate through extensions, driving additional non-food ranges and improving the food offering;
and Continuing the accelerated growth plans for the convenience estate, as previously announced, with plans for fifty new stores in 2009/10 and a further 100 stores in 2010/11.
Fantastic. Just what the UK needs; another 2.5m square foot of food retailing space.
Anyway, traders reckon the £190m convertible bond looks cheap.
SBRY is rated BBB- and has 5year CDS at 84bp and has EBITDA/Total Interest Expense of 6.59x making the debt profile more attractive than the BBB- rating might indicate. * Using a conservative long-dated input volatility of 20% and factoring in a 100bp negative basis to the CDS therefore an input credit spread of L+185bp gives a range of fair value of 101.80 to 104.70.
As for the £225m share placing, that has also met with a good reaction. Analysts are positive, while City institutions have gobbled up the stock, paying 310p. (That’s a 6.5 per cent discount to Tuesday’s close price).
Here are the thoughts of Cazenove.
The capital raising will most likely put some near term pressure on the shares (we would expect to see the shares down by 3-5%) although we are supportive of the move which allows an acceleration of the growth strategy. We believe Sainsbury has a significant long term opportunity in non-food/larger stores and recognise that there was some capital constraint which was limiting the company’s ability to execute these plans in the most timely fashion. Non-food is a scale business so accelerating the development of this is helpful in terms of kick-starting the process of driving group returns higher.
Related link:
Sainsbury raises £445m to lift growth - FT
