J Sainsbury (LON:SBRY) is preparing a radical overhaul of its underperforming banking arm, The Telegraph has reported. The move comes as the blue-chip grocer reconsiders its business model following its failed merger with Walmart’s Asda.
Sainsbury’s share price has climbed higher in London this morning, having gained 0.45 percent to 202.50p as of 09:40 BST. The stock is outperforming the broader UK market, with the benchmark FTSE 100 index currently standing at 7,281.83 points, flat in percentage terms.
Sainsbury’s could overhaul banking arm
The Telegraph reported over the weekend that Sainsbury’s was understood to be examining options for its loss-making financial services unit as it prepares to lay out a new strategy to City analysts and investors later this month. The potential move will come after FTSE 100 rival Tesco’s (LON:TSCO) banking unit moved to sell its mortgage portfolio to Lloyds Banking Group (LON:LLOY).
City A.M. quoted Shore Capital’s Clive Black as commenting that the grocer “has invested an awful lot of money both in capital expenditure and in operating expenses” into the bank for a “derisory profit”.
“Retail banking is very highly regulated and in that respect requires processes and systems that require a lot of capital,” the analyst pointed out, further noting that the bank faced stiff competition.
“It’s digital business like Monzo that are starting to attract younger business-like people that are more of a challenge to the likes of Barclays and Lloyds than Tesco and Sainsbury’s,” Black said, as quoted by the newswire.
Analysts on blue-chip supermarket
Investec, which rates the blue-chip grocer as a ‘buy,’ boosted its target on the Sainsbury’s share price from 265p to 280p at the end of last month. According to MarketBeat, the FTSE 100 group currently has a consensus ‘hold’ rating and an average valuation of 232.36p.
Sainsbury’s is scheduled to update investors on its interim performance on November 7.