Sainsbury’s plays the long game by foregoing the subsidy of interest


The Christmas report by The Sainsbury revealed why last month the boards of all the big retail chains had to come to their senses and accept that all those corporate tax cuts had to be returned to the Treasury. Having given up £ 410 million worth of tax breaks this financial year, Sainsbury’s expects £ 330 million in pre-tax income, an uncomfortable 44 percent decline from £ 586 million last year.

But consider the alternative: if Sainsbury’s retained the profits, this year it would expect a profit of £ 740 million, a 26 percent rise over last year, which would have ensured constant publicity about profiting from a pandemic. The prestige gamble was never worth taking, especially when you are still lobbying the government for the obsolete tax system to be permanently reformed. Even before Covid, the argument for reform was strong: in the traditional presentation, the playing field was tipped too heavily in favor of the online brigade.

The argument ought to be overwhelming, following Covid. A fairer plan will increase warehouse tax rates (by 30 to 50 percent, as proposed by the executive director of Next, Simon Wolfson) to finance supermarket discounts and revive struggling high streets.

Such a step will clearly represent the reality of the economy – since the last tax overhaul, warehouses have risen in value, not shops. Supermarkets may have done themselves a favor in the long run by playing fair on tax relief (although only after some urging). It is a surprise that, without tapping shareholders for extra cash, Mitchells & Butlers, Britain’s largest pub business and one saddled with the normal basement load of debt, has come this far into the pandemic.

Sales plunged by two-thirds last quarter, and sales were 30 percent below average even in the weeks when pubs were permitted to open. The workers are now laid off again, but the health bills and the like are always coming in.

M&B calculates that during the closure, the company would burn £ 35-40 million a month in cash. To service £1.5 billion in loans, add to that £ 50 million per quarter. The need for new equity, as opposed to any more borrowing, is evident with a cash balance of just 125 million pounds and debt repayments due next mid-March. How much of it should be raised is an open question. What the price of prudence will be, the board has not yet determined, but the amount will definitely be at least enough to finance another quarter of the lockdown plus a little on top – so let’s say £ 200 million. That’s about a fifth of the declining stock market value of M&B, so it should be easy to do.

It also helps, of course, that billionaires control the share register. Tottenham Hotspur owner Joe Lewis owns 23%, and the Irish horse racing pair JP McManus and John Magnier jointly own 27%.

You should handle M&B’s crisis. But think of the independent restaurateurs who do not have the M&B size or access to capital as well. The entire hospitality industry cries out for the chancellor’s clarification on whether, if necessary, the furlough policy will be extended beyond April and whether business tax relief (for a sector that needs it) will run beyond March.

Rishi Sunak needs to make a call, as argued here earlier this week, and quickly. Tesla’s stock price rise is way too much, too fast We gasped when Tesla last fall, via a reported 1-for-5 stock split, became worth $500 billion. Today, only a few months later, the company is worth $750 billion with inclusion in the S&P 500 Index in the bag, and Elon Musk, its visionary founder and 21 percent shareholder, is the richest person in the world on paper. Tesla is a genuinely important company-there is no longer any doubt about that-and its technical edge in electric vehicles will live for a long time to come.

But it’s inexplicable to see a sevenfold rise in its stock price in 2020.

That’s way too much, too fast, and it seems to assume that income growth has already taken place for decades…. The incredible stock price of Tesla is also proof of the claim of the bears that segments of the U.S. stock market are in a mania. It’s getting stronger their point.


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