Neil Collins

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Oh goody, more supermarkets

June 17, 2009

Do you feel that the supermarkets are neglecting you? That your local Sainsburys is too far away or looking a little scruffy? Justin King is here to help. Other companies may be scratching around for capital to fix their balance sheets, but J Sainsbury is raising it to expand; more space, bigger stores and a little light property speculation on the side. 

Chief executive King has a good story to tell, with a trading update which trumps Tesco’s and makes the analysts’ forecasts look slightly conservative (which is how they like it). It’s confirmation that the food retailers are having a good war in the current recession.

This simple story was such a relief to investors that the 255 pounds-worth of new shares were placed within minutes at less than 7 per cent below Tuesday’s close, an elegant contrast to Punch Taverns’ desperate, drawn-out fund-raising on Monday. The 190 million pounds of convertible bonds swiftly followed.

The puzzle is why King should choose such a relatively modest amount. The 445 million pounds is little more than a snack for a business valued at 5.7 billion pounds on Tuesday night. However, a bigger sum, and yet more store expansion, might have spooked the fans – this issue will slightly dilute earnings, as the money is spent before the benefits start to show.

Some 29 million pounds of the new cash will go to buying nine more stores from the Co-Op, with the rest spent tarting up and expanding the empire of 300 supermarkets and 500 convenience stores into Britain’s northern territories. The inhabitants have been warned.