Hargreaves Lansdown

Morrison (Wm) Supermarkets (MRW) Ordinary 10p

Sell: 176.20pBuy: 176.40p06.20p (3.65%)
FTSE 1001.23%
Market closedPrices as at close on 19 December 2014Prices delayed by at least 15 minutes | Switch to live prices |
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HL comment (6 November 2014)

Third quarter results: Whilst it is too early to say whether Morrison's throwing down the gauntlet to the discounters will succeed, the current picture is one of a beleaguered supermarket within a tough sector. There are some indications of progress - the financial stability mentioned at the interims seems to have been maintained given the group's capital discipline, the "Match & More" scheme is a clear statement of intent, and the roll out of convenience stores remains on track. In addition, and providing that it remains sustainable, the current dividend yield of 7.5% is both eye-catching and a clear invitation to income seeking investors. However, Morrisons is still a "jam tomorrow" stock, in the midst of a three year plan which aims to eliminate the current loss of sales, market share and inevitably therefore, profit. Whether investors retain the patience to benefit from any recovery remains to be seen, but of late supporters have been few and far between. The share price has fallen 42% over the last year, as compared to a 3% dip for the wider FTSE100 and in the absence of any true visibility of earnings, the current market consensus opinion of the shares as a sell is likely to remain in place.

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Financial Highlights:
  • Morrisons narrowed its full year underlying profit before tax guidance range - £335 million to £365 million, compared with the previous range of £325 million to £375 million following £65 million of new business development costs and £70 million of one-off costs.
  • In the 13 weeks to 2 November, total sales excluding fuel were down by 3.6% (down 5.6% including fuel).
  • Like-for-like sales were down 6.3% (8.0% including fuel).
  • The group's net debt position continues to improve, currently standing at £2.6 billion. Morrisons expect the figure to be £2.3 - £2.4 billion by the year end, £100 million lower than guidance and up to £500 million lower year-on-year.

Negative Points:
  • Competition remains fierce in the supermarket space. Like its peers, Morrisons has been scrambling to retain to retain market share. The discount supermarkets have become a thorn in the side for the bigger players.
  • Convenience, online and the discount channels are seen as the fastest growing sectors of the market. 
  • Consumers have continued to face challenging economic conditions. Many customers have been constrained financially and have had to choose carefully where they shopped. 
  • Unlike some rivals, the group does not enjoy any degree of international diversity. 
  • The grocer has also been slow to recognise the move from big out-of-town stores to local convenience stores. 

Positive Points:
  • In March, management announced plans to realise savings of £1 billion over the coming three years to strengthen its business and reinforce its core customer proposition. Today, the group remains confident it will achieve these cost savings and generate £2 billion in cash over the same timeframe.
  • 12 new M local stores, 3 new core stores and one replacement store were opened in the period. The supermarket said it is on track to meet its target of opening 60-70 new M local stores by the year end.
  • In September, Morrisons announced plans to close its produce packing facility in the Netherlands (Bos Brothers BV), and plan to transfer operations either to growers or its existing UK produce facilities during 2015.
  • In early May, it announced plans to cut prices permanently on over 1,200 of its products.
  • Morrisons long awaited online offering - Morrison.com launched in January 2014.
  • Last month, the supermarket launched a new price match and points card (Match & More) in a move to tempt customers back from its budget rivals and said the card is proving popular with customers.
  • A well-funded pension scheme has been previously reported.
  • In a sign of confidence in Morrisons strategic direction, the Board said it is committed to pay a total dividend for 2014/15 of not less than 13.65p and a progressive and sustainable dividend thereafter.

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