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J Sainsbury’s (LSE: SBRY) share price dropped after Qatar’s sovereign wealth fund announced it would reduce its longstanding holding in the firm. This brings its total fall from its 6 November one-year traded high to 14%.
Such a drop might signal a bargain to be had. But it depends on how the stock’s value looks now. This reflects the true worth of underlying business fundamentals, while price is whatever the market will pay for a share.
So, is it a bargain now, and if so, how big?
Short-term risk?
Qatar Investment Authority’s 2 December announcement specified a stake reduction from 10.5% to 6.8%. This will end nearly 20 years as the supermarket giant’s largest shareholder.
The market hates uncertainty, and this change in shareholdings is that. The Qataris gave no reason for the reduction, which has added to market concerns.
It does mean that Sainsbury’s no longer has the wealth fund as a stabilising long-term backer. Analysts may infer that it reflects caution on slim UK supermarket margins. Investors may see this as a sign of broader wariness on supermarket sector valuations.
Long-term reward?
That said, a major business’s fundamentals do not change overnight.
Sainsbury’s is still the UK’s number two grocer with strong food sales and a growing online presence.
Its 6 November H1 2025/26 results saw retail sales (excluding fuel) rise 4.8% year on year to £15.6bn. Group-level underlying profit before tax jumped 10% to £340m. And profit after tax more than doubled to £165m.
Positively as well, management lifted its full-year underlying retail operating profit guidance to over £1bn from around £1bn.
The company will also return £400m to shareholders through a £250m special dividend and £150m share buyback.
Unlocking value?
With Qatar’s stake reduced, activist investor (and Royal Mail owner) Daniel Křetínský becomes Sainsbury’s biggest shareholder. He is known for unlocking value through restructuring, divestments, and asset sales when they make strategic sense.
It may also be that he can finally push through the sale of Argos. He might also see selling or spinning off Sainsbury’s property assets as a means to crystallise hidden value.
He is also keen on exploiting tech firm collaborations, so these might be used to strengthen online delivery and click‑and‑collect.
And he is an advocate of increased automation in distribution centres and AI-driven stock management, which could cut costs.
A risk to Sainsbury’s earnings is the intense competition in the sector, eroding its margins.
That said, analysts forecast its earnings will grow 7% a year to end-2027.
How undervalued are the shares?
A discounted cash flow (DCF) valuation shows the stock is 22% undervalued at its current £3.08 price.
So, its ‘fair value’ is £3.95.
This is not the 30%+ level I usually want for an undervaluation, because less than this could be accounted for by high market volatility.
However, the cash flow forecasts used in this DCF cannot factor in what Křetínský might have in mind for the firm.
Given this, and its significant under-pricing to fair value, I think it could be a great short-term-risk/long-term-reward play.
It is not for me, as I focus on 7%+ dividend-yielding stocks, and Sainsbury’s currently delivers 4.4%.
However, for investors without that focus, I think the stock is worth considering.
