Morrisons Interim Results: What The Analysts Said...
The turnaround is well and truly underway at UK retailer Morrisons, which has posted a 3.0% increase in like-for-like sales for the first half of the year, as well as its seventh consecutive quarter of positive growth. Here’s how the analysts saw its interim performance:
Derya Yildiz, Kantar Retail
These results show that David Potts’ ‘Fix, Rebuild and Grow’ strategy is bearing fruits for the grocer. […] While its competitors struggle with maintaining a strong cash flow (now £2.7 billion in total since the start of 2014/15), Morrisons has proven a healthy balance sheet over the quarters. With the recent McColl’s deal for its Safeway brand, Morrisons is finally tapping into the small box scene and doing so without bearing any operational challenges of the convenience channel. The grocer expects wholesale supply sales to be more than £1 billion by the end of 2018.
Alastair Lockhart, Savvy
“Further signs of positive momentum from Morrisons this morning, particularly with transaction numbers increasing. The challenge however continues to be the reduction in basket size – a problem shared by a number of big store retailers as shoppers buy less more regularly and increase their use of discounters. The next 12-18 months will continue to be difficult with potentially softening consumer confidence and the ongoing pressures of cost price inflation.”
Bruno Monteyene, Bernstein Research
“Strong FCF of £352 million, £210 million ahead of our expectations of £142 million. The beat is driven by a further £102m or working capital improvement; we had expected working capital improvement to be largely complete, and an unexpected £93m of disposal proceeds (which Morrisons include within their definition of FCF). […] Net debt of £932m , already below the full year company guidance of below £1 billion. The company guidance is to expect the net debt to remain below £1 billion for the rest of the year, after this strong performance in H1 it could reduce towards £0.8 billion, which makes the share buy-back that we pencilled in for next year, more likely.”
Barclays European Food Retail Equity Research
“Numbers are broadly in-line – maybe a fraction light on sales but stronger on cash. However, the company is not changing its FY net debt target (<£1 billion) and is highlighting a couple of 2H issues (seasonal WC outflows, higher capex, lower disposal proceeds) – so the positive read-through on strong cash generation in 1H may be limited. […] Morrison is increasing its target for incremental profit from wholesale, services, interest and online from £50-100 million to £75-125 million (current run-rate of £32 million). The new “incremental profit” guidance includes a contribution from the recently signed McColl’s agreement – although the £25 million increase is not necessarily purely due to McColl’s.”
Clive Black, Shore Capital
“Wm Morrison Supermarkets ('Morrisons') delivered another robust period of trading and strategic development in H1 2018. […] Cash generation remains strong and so Morrisons has further strengthened its balance sheet; net debt (ND) fell by £262 million in the period to sub £1 billion. The outlook for the group looks sound to our minds, further self-improving the core offer whilst continuing to broaden the group in a complementary manner; the forecast medium-term profit guidance from activities outside the core chain is raised to £75 million-125 million from £50 million-100 million. We retain our future earnings forecasts post this update. Morrisons' stock looks well set for the future and high shorting activity continues to be misplaced to our minds.”
© 2017 European Supermarket Magazine – your source for the latest retail news. Article by Stephen Wynne-Jones. Click subscribe to sign up to ESM: The European Supermarket Magazine.