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Morrison (Wm) Supermarkets (MRW) Ordinary 10p

Sell: 155.50pBuy: 155.70p0No change Ex-dividend
FTSE 1000.15%
Market closedPrices as at close on 30 October 2014Prices delayed by at least 15 minutes | Switch to live prices |
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HL comment (11 September 2014)

Half year results: Morrisons may have confounded its doubters by raising its dividend in contrast to Tesco's recent cut, but there nonetheless remains a tortuous journey to anything resembling a full recovery. There are positive pockets within the update, such as a reduction in net debt, a well funded pension scheme and an improvement in working capital, all of which suggest financial stability. In addition, the company has returned to profitability after the previous full year loss, whilst the dividend hike adds to an existing yield of 6.7%, one of the highest within the FTSE 100 and a clear attraction for income seekers. However, like for like sales, underlying and pre-tax profits are all sharply down on the corresponding period last year, the progress quoted in terms of the company's online and convenience store presence is nascent, whilst the ongoing assault from the discounters continues to crimp margins. There may well be a recovery to come, and within Morrisons' three year plan significant cash generation and cost savings are forecast. The share price has certainly reflected its difficulties, despite today's spike, having fallen 40% over the last year, as opposed to a 4% rise in the wider FTSE 100. To a large extent, investors' patience has long since evaporated and the current market consensus opinion of the shares as a sell is likely to remain in place for the time being.

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Financial Highlights:
  • Morrisons reported a 51% decline in underlying profits before tax from £371 million in 2013/14 to £181 million.
  • Total turnover during the 26 weeks ended 26 August was £8.5 billion, down 4.9% year-on-year.
  • Like-for-like sales (ex fuel and VAT) down 7.4% from a 1.6% fall a year earlier.
  • Group property disposals during the period of £280 million recognised profits of £54 million.
  • The group's net debt position improved, reducing by £209 million to £2.60 billion (full year - £2.81 billion).
  • The board have proposed a 5% rise in the interim dividend to 4.03 pence per share.

Negative Points:
  • Sir Ian Gibson, Non-Executive Chairman acknowledged trading conditions were tough, noting the whole industry was experiencing "unprecedented change".
  • One-off costs in the period were £35 million. For full-year 2014/15, the supermarket expects a figure around £70 million, in line with previous guidance that includes Kiddicare trading losses, restructuring costs, and the launch costs of its new Morrisons card due shortly.
  • Competition remains fierce in the supermarket space. 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 outlook comments, full year profit expectations remain on track. Morrisons expect 2014/15 underlying profit before tax to be in the range £325 million-£375 million, after £65 milliion of new business development costs and £70 million of one-off costs. Furthermore, the company said it remains confident that it will generate £2 billion in cash over its three year strategic plan.
  • 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. 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.
  • Property disposals of £280 million recognised profits of £54 million. The company expect total disposals of £400 million to £500 million for 2014/15, in line with previous guidance.
  • Four new supermarkets (120,000 square feet) and 17 M local convenience stores (45,000 square feet) were opened during the period. We now expect to open 60-70 new M local stores in 2014/15, which is below an original target of up to 100 stores.
  • A well funded pension scheme was 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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