UK retailer Morrisons has posted a 9% rise in first-half profit on the back of a strong summer performance – the retailer posted a 6.3% gain in like-for-like sales in the second quarter.
Commenting on the retailer's performance, David Potts, chief executive said, "Morrisons continues to become broader, stronger and a more popular and accessible brand, and I am confident that our exceptional team of food makers and shopkeepers can keep driving the turnaround at pace."
Here's how some of the UK's leading retail analysts saw it:
Clive Black, Shore Capital
"Morrisons has reported another period of demonstrable operational and financial progress. The Group's stock rating is quite fulsome at an earnings level, trading on a FY2019 PER of 20.2x, falling to 18.7x in FY2020.
"That said, strong foreseeable compound earnings growth coupled with ordinary and special dividend payments that provide a still very attractive 4.7% income yield look to carry high levels of visibility, and should support increasingly attractive ongoing earnings multiples as opposed to recovery ones.
"Additionally, the Group's strong financial structure, shareholder friendly capital allocation strategy and accretive RoCE (up by a further 20bps yoy to 8.0%) help to underscore such a suggestion, in our view.
"We also point out that from a valuation perspective the Group's EV/EBITDA multiple is much less demanding at 8.0x for the current year, falling to 7.6x in FY2020, highlighting the underlying strength of operating and free cash flow in the business. Furthermore, such traits seem anathema to a share still attracting shorting interest to our minds. Therefore, for the medium-term we see growing, strong, defensive Morrison equity as one that should sustain ongoing investor support."
Russ Mould, AJ Bell
“In some ways it is a shame that Morrison’s interim results are marred by two exceptional items that knock £61 million off stated profits, as the underlying financial and strategic progress is good.
“An eleventh straight quarter of like-for-like sales growth, strong momentum in wholesale thanks to the relationship with McColl’s, lower debt and a special dividend are all testimony to the improvement in performance under chief executive David Potts and team.
“This is not to say the Morrison can rest on its laurels. The group is still at risk of finding itself in the squeezed middle of the grocery business, with the discounters Aldi and Lidl attacking it from one side, and Sainsbury, Tesco and Waitrose from the other (and that’s before we find out what Amazon intends to do with its $13.7 billion acquisition Whole Foods.
“But this is why Mr Potts’ work on the company’s competitive position is so vital, as this will determine the firm’s long-term operational – and therefore share price – performance in the long term."
Bruno Monteyene, Bernstein Research
"Q2 Retail and Wholesale LfL comfortably exceeded consensus, profits slightly ahead but again a strong cash surprise leading to interim special dividend [...] of 2.0p, in addition to regular interim dividend of 1.85p (total interim dividend of 3.85p).
"There is a first surprise in having an 'interim' special dividend. The second welcome surprise is the fact that the special dividend is slightly bigger than the regular dividend. Several investors have queried in the past our special dividend as we have a special dividend this year equal in size to the regular dividend (i.e. 100% pay-out across the 2 dividends). This is the first confirmation that the total dividend at Morrisons is set for a big step up this year (up 100% yoy, yielding ~5%)."
Catherine Shuttleworth, Savvy
“Great to see positive sales numbers from Morrisons. We would expect supermarkets to have had a storming summer of sales with a hugely successful World Cup campaign and fantastic weather and Morrisons have clearly won more of their fair share of the BBQ bonanza this alongside their developing sales channels online - but the pressure on profit is significant with profits down 29%.”
© 2018 European Supermarket Magazine – your source for the latest retail news. Article by Stephen Wynne-Jones. Click subscribe to sign up to ESM: European Supermarket Magazine.
