Hello. Welcome to Company Focus. My name is Aamer Nawid, analyst at Fat Prophets.

Today I'm going to be taking a look at the two supermarket giants in the UK Sainsbury's and Tesco and I'm also going to be looking and outlining the factors why share price performance of Sainsbury's has dominated that of Tesco so far this year.

Given that both companies have reported something to the market it's a good time to look at them. Not only have the recent announcements sort of underscored why I'm broadly positive about the sector, they also give a telling or indication as to why Sainsbury's shares have far outperformed those of Sainsbury's 20 per cent versus 2.5 per cent, there or thereabouts.

Tuesday this week Tesco came out, posted a decent set of numbers for the six months to August 28th. Pre-tax profits were up by 12.5 per cent, so pretty decent.

The graphic here shows a breakdown of where all the action was. Asia was the big story for Tesco this time around. You can see here sales growth was fairly dramatic. The US stands out. However, the US is fairly inconsequential. It makes up quite a small amount of Group revenues, but Asia was the main event. Interestingly enough, UK, just to reiterate, the UK is the main area for Tesco which sometimes overlooked all this talk of international expansion.

So results came out for Tesco on Tuesday. Wednesday Sainsbury's came out and posted decent like-for-like sales growth also for the three months to early October. Excluding fuel, like-for-like sales grew by 2.9%. Now that's pretty decent. That's better than what they reported for the three months before that. The expansion was 1.1% and crucially, it's better than Tesco's second quarter performance which was 1.3%.

Whilst both announcements were broadly positive, they were very different. Tesco's focused on the Asian expansion and reiteration of their commitment to the States as well as financial services.

Sainsbury's on the other hand were sort of focused on expanding the current lines of business in areas where they're currently established such as the UK.

There is no question at the moment the market share movements and sales momentum is with Sainsbury's. This probably explains why investors have preferred to sort of invest in Sainsbury's rather than Tesco over recent times.

Maybe with Tesco, investors, having seen a dramatic and speedy rise to dominance, are thinking well, or scratching their heads and thinking where to now in terms of domestic earnings growth? Where can Tesco go to?

International expansion is often cited as a reason to favour Tesco. However, Tesco has discovered that this has come at a high cost of capital. It's very capital intensive, especially in Eastern Europe. Don't get me wrong, I do still like Tesco. The company is the third largest retailer in the world on a revenue basis. It sells everything from milk to mobile phones and mortgages will soon be on the menu.

Floor space wise, their space is 100m square foot and that's all over the world. Okay, the US has proved to be a tough nut to crack but management have said that's going to be profitable by 2013 and although the outgoing CEO Sir Terry Leahy is a big loss, Philip Clarke, his successor, is not exactly a new kid on the block, he's been there for years, he knows his way around. Maybe the new management setup could provide some of the answers that some slightly disillusioned investors might be searching for.

Sainsbury's on the other hand, the revolving door in terms of management is no more and there is a great deal of stability there relative compared to previous years. The market clearly believes that the current management team are more than capable of making up further grounds on rivals Tesco and sort of other rivals also.

In terms of what they're going to do, they've got plenty of options. Store expansions are one of them. They've only just started to capitalise on this. They've got more scope to expand their stores and store expansions tend to be quite earnings accretive quicker. They've got more scope to do this than Tesco simply because a relatively small number of their stores offer the non-food sort of offering which is an area which is sort of growing at three times the rate of the traditional grocery store.

In addition to this, convenience stores as well. They're ramping up the number of those, so that should prove earnings accretive over the long-term as well.

I think there is no doubt Sainsbury's has come out of 2010 on top, or so far anyway, and will probably continue to do so throughout the end of the year. However, I think both companies are probably worth holding onto for the time being.

As management teams have pointed out, fuel price inflation is putting UK household budgets under pressure meaning that the UK consumer still is quite fragile. But there has been a shift in terms of shopping trends towards quality and that's a reversal of the trend that benefited the serial discounters during recession.

Mild food price inflation will also help, as will I think in the longer term their forays, the respective forays into the financial services. That's an industry which is crying out for a conservative name both of which these two companies can offer.

Thanks for watching. Make sure you tune in again next week.