Sector movers: Sainsbury leads market lower on strong trading volume

Grocers led the market lower as the news-flow surrounding the sector continued to be intensely negative, with investors’ worries seemingly cristalysing as shares of Tesco continued to slide lower.

That followed the unexpected news first thing Wednesday morning that the Financial Conduct Authority (FCA) had told Tesco that it would be carrying out a full investigation into the company’s recent overstatement of its profit guidance.

"Such an investigation can only be another distraction for new CEO, Dave Lewis, and represents another black mark on the Board that Mr Lewis recently joined," said sympathetic analysts at Shore Capital.

The company’s outlook is sufficiently complicated that on basis of estimates by broker Nomura the firm’s debt metrics – at over the sector average of 3.5 times adjusted net debt/EBITDAR – are already at 'junk' (or very high-risk) levels.

Even so, it should be pointed out that Nomura, for one, does expect this year to mark a ‘trough’ in Tesco’s profits.

In recent research notes other analysts have recently pointed out that should the stock price fall towards the 150p area the shares would be entering ‘value’ territory.

Nevertheless, for the very near-term at least technical analysts at Digital Look describe the aspect of the company’s share price graph as “daunting”.

In parallel, on Wednesday morning rival Sainsbury’s reported a 2.8% drop in like-for-like sales for the second quarter, once fuel sales are excluded.

The analyst consensus had been for a fall of 3.5%.

However, Sainsbury’s has revised its guidance for the second half. It now foresees like-for-like sales in the second half similar to those seen over the first six months of the year.

Following on from all of the above, and as a result of the pressures which have been bearing down on the sector of late, analysts at Shore Capital explained to clients that “we harbour growing concerns about [the dividend's] sustainability at current levels with recent trading trends and profit trajectories.”

Shares of Sainsbury finished the session lower by 6.66% at 2,348p while Tesco stock was down by 3.22% to 1,802p.