Sainsbury's: Certain rumours

Steve Hawkes

J Sainsbury’s staff were so convinced that last year’s £10 billion takeover by the Qatari Investment Authority was going to go through that many had already paid the deposit for the extension and bought their second home.

Disappointment that the bid never materialised was tangible yet with the Qatari’s still on the shareholder register, speculation of a fresh approach has always been in the background. It resurfaced yesterday and Sainsbury’s shares surged 8 per cent.

The Sainsbury’s board should thank their stars. But for the speculation of a return by the Qatari’s, Sainsbury’s stock would arguably be a fair bit lower.

At the current price - 345p - Sainsbury’s is on a price-to-earnings ratio of 16 times forecast earnings for 2009, at a time when Shore Capital points out that the stock market average is closer to 10.

The premium is hard to justify given that Sainsbury’s is particularly vulnerable to the fallout from the credit crunch. The slowdown is putting the squeeze on Middle England, Sainsbury’s heartland. Justin King, the chief executive, conceded earlier this year that like-for-like sales volumes were down year-on-year and all the anecdotal evidence is that Asda, Wm Morrison and Tesco are poaching those customers who are now looking for bargains rather than organic produce.

The Qatari’s may not be ready to come back just yet, but their presence is providing valuable support to the stock at a time when Sainsbury’s needs all the help it can get.

Bradford & Bingley: Another kick

Miles Costello

As if Bradford & Bingley did not have enough to contend with, it now finds itself victim of professional mortgage fraudsters.

The embattled buy-to-let lender took an £18 million charge against frauds that came to light in the first half, although it claims it will recover at least some of this.

The charge accompanies bleak news that mortgage arrears were running at a worrying 2.29 per cent and are unlikely to improve over the next six months.

B&B issued £4.4 billion in mortgages in the first half and £1.9 billion in loans, both precipitous drops on the same period the previous year.

The first-half loss was an unhappy £26.7 million, but was entirely expected.

B&B cannot be the only high street lender to have been hit by lending scams and at least it is being transparent in declaring the hit.

It has also scaled back its loans and mortgages as it begins the process of properly cutting its suit to fit its cloth. But its preference for self-certification mortgages could be seen as making it more vulnerable to the unscrupulous. Analysts reckon that more than a fifth of B&B's loans book is composed of these borrowers.

The bigger worry is that B&B is still geared to the fortunes of a housing market whose medium term outlook is bleak. Nor are the shares, which at 48.5p, sit at nearly 11 times next year's earnings, especially cheap. Avoid.

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