Panmure Gordon expects the downgrade cycle will continue at supermarket chain Morrisons, with the group seen under-performing the market all the way into fiscal 2014.www.digitallook.com
The broker is forecasting third quarter (Q3) like-for-like sales will have declined by 0.1%, which will put pressure on the profit & loss account.
"It has already announced Q1 and Q2 like-for-like sales declines of 1.0% and 0.9% (ex-petrol) respectively. Q3 has a slightly tougher comparable, but we look for a decline of 1%. New space is expected to add around 2.1% to sales growth in H1 [first half], so total sales growth should be just over 1% (ex-petrol). The last Kantar data for the 12 weeks to September 30 had Morrison growing at 0.0%, so the risk to our forecast seems to be on the downside," Panmure Gordon reckons.
Does the above suggest that any slight bad news will result in a Tesco "profit warning" price fall type day for Morrison next week? Tesco fell almost 20% on the back of a poor showing in its UK market back in January, could the same happen to Morrison if the numbers are even slightly lower than expected? Even though the P/E and dividend yield for Morrison are not that demanding right now, but if the market sees a profit warning coming in then the shorters could have a field day next week.
Alongside Tesco, Morrison seems to have fallen out of favour with the market over the last 12 months or so. Right now, Sainsbury seems to be the darling of the food retailing sector. With Christmas coming up, if it were a panto, Sainsbury is playing the market Cinderella while Tesco and Morrison seem to be the ugly sisters.
Morrison has two big problems, which until recently the city didn't seem to think was a problem as long as the share price was going up, that are now proving to be a drag on performance. The first is that they have no internet presence. Amazing when you think about it, you cannot shop online with Morrison, one of the biggest UK food retailers! Second, they have no convenience store presence. Both of these they are trying to address, but it isn't going to happen overnight. It could also be added that they are a UK based operation, no overseas presence. No alternative source of profits coming in, like Sainsbury they make their money from the UK and if that is faltering then the market in this time of austerity can respond badly.
Unless the announcement next week is a real downer, then for now it may well be that most of the bad news is priced in. Of course it could go lower, but like Tesco we are still talking about a big cash generating businesses here. The trouble is, the market likes to see inflation number busting increases all the time when it comes to the figures that matter, the forecasts that city brokers make and Morrison will probably fail to deliver.
Morrison update;
ReplyDeleteResults more or less as expected.
In the quarter to 28 October 2012, total sales excluding fuel were down by 0.4% (up 0.2% including fuel) and like for like sales were down 2.1% (down 1.3% including fuel).
The business is making good progress in delivering its strategic initiatives designed to provide a solid foundation for future growth.
During the period Morrisons introduced its market leading Fresh Format into a further 35 stores and is on track to meet its target of extending this to 100 stores by the end of this fiscal year.
Morrison's Own Brand relaunch which will extend to 10,000 products is progressing well and has made significant progress in the delivery of Evolve, its IT infrastructure project, with the introduction of the crucial supply chain management system. There was also the launch of Morrisons Cellar, the online wine operation.
The group is well advanced on our programme to retire £1bn of equity over the two years to March 2013. To date we have acquired 299m shares at a total investment of £852m. The financial position of the Group remains strong.
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