20th Jun 2024 16:58
(Alliance News) - The decision by J Sainsbury PLC to sell part of Sainsbury's Bank to NatWest Group PLC makes sense, allowing the grocer to focus on its core business.
Under the deal, which comprises Sainsbury Bank's outstanding credit card, unsecured personal loan and saving accounts, the grocer will pay NatWest GBP125 million.
Sainsbury said it expects to return GBP250 million to shareholders once the phased withdrawal from its core banking business has been completed and the future model for the Argos Financial Services operation is in place. The Argos Financial Services division is not included in the NatWest deal.
Completion of the NatWest deal is expected in the first half of 2025.
Sainsbury Chief Executive Simon Roberts said the company will "focus all our time and resources going forward on growing our core retail business, delivering great quality and value, week in week out."
AJ Bell Investment Director Russ Mould thinks the deal "makes sense as it leaves Sainsbury’s with a sharper focus on food and general merchandise".
The price may not appear significant but the transaction is important from a strategic perspective, Mould added.
"It’s no surprise the market has given the thumbs-up to Sainsbury’s disposal. The supermarket has been on a roll over the past few years with its strategy of focusing primarily on food and removing any distractions elsewhere in the business could help to oil the wheels," Mould remarked.
Mould suggested the prospect of interest rate cuts could see the public start to trade up from discounters and spend more money in places like Sainsbury’s.
He pointed out that in April, Sainsbury said its Taste the Difference premium range was performing ‘especially well.’
On the banking exit, Mould noted supermarkets have experimented over the years with ways to expand beyond their core focus, offering products that grocery customers might also want.
On paper, it was a simple cross-selling exercise, but Mould explained "we are now in an age where companies have a preference to focus on what they do best and retreat from the rest."
In February, food retail peer Tesco PLC agreed to sell the retail banking business of Tesco Bank to Barclays PLC.
Barclays will pay about GBP600 million for the business, which has been in operation for more than 25 years.
Shares in Sainsbury rose 2.1% to 265.00 pence in London on Thursday. Shares in NatWest climbed 2.3% to 319.60p.
By Jeremy Cutler, Alliance News reporter
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