Morrison (Wm) Supermarkets (MRW) Ordinary 10p

First quarter interim management statement: Investors continue to head for the exit in search of better opportunities elsewhere. Morrisons is making slow, grinding progress, but time is not on its side. There are some signs of optimism, such as an increase in sales, continued promotional activity and an attractive dividend yield of 3.8%. However, the company is something of a laggard in the increasingly important twin strategies of online and the convenience store format. Indeed, whilst rivals continue to hone their online offerings and increase their focus on convenience stores, Morrisons is playing catch-up and this will be an increasingly difficult gap to close. This is quite apart from the ferocity of competition in the sector and a generally crimped household budget. The shares have made some ground over the last year, having risen 8%, although this compares to a 19% hike for the wider FTSE100. The current pace of progress is not enough to tempt investors and the market consensus of the shares as a sell is, we believe, unlikely to be troubled.

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Financial Highlights:

• Total sales (excl fuel) rose marginally 0.6% in the quarter.
• Group net debt increased to £2.3 billion (£2.18 billion - March) but was in line with management expectations.

Negative Points:

• Recent industry surveys have shown Morrison lagging the sales growth of major rivals, partly due to its lack of an online offering, but also due to its limited convenience store business, as well as competition from discount retailers such as Aldi.
• The UK's number 4 supermarket said that sales at stores open over a year fell 1.8%, excluding fuel, in the reporting period to 5 May.
• The grocer has been slow in developing an online presence. Data shows online grocery sales in the UK will double to £11.1 billion and the convenience-store market will expand by 29% by 2017, according to the Institute for Grocery Distribution.
• Many of Britain's grocers are finding the going tough, despite their focus on essential goods, as consumers cut back on spending due to fears over job security, a squeeze on incomes and government cuts.
• Unlike some rivals, the group does not enjoy any degree of international diversity.

Positive Points:

• Outlook comments remained cautious in tone, however full year expectations remained unchanged.
• Plans to launch its inaugural online food operation in January 2014 were progressing, said the group. Discussions with Ocado continue, and a further announcement is expected when Morrisons announces its interim results in September.
• The group said its tailored fresh food proposition was performing to plan and will span 40% of its estate by the end of the current financial year.
• Cost containment remained in focus. An IT system replacement programme was on track, and a £200 million reduction in capital expenditure was recorded in rephrasing new store investment.
• When announcing full year results in March, Morrisons reported that its first 12 M local convenience stores were "performing well" with an accelerated target established over the coming year. A West London convenience distribution centre (CDC) is open with a further centre earmarked to support North of England expansion.
• During the latest period, the company opened six stores, including two Morrisons M locals and acquired more than 80 stores to add to its convenience pipeline. 
• The board adopts a progressive dividend policy that is currently yielding 3.8%.

All yield figures are variable and not guaranteed.