As Morrisons updates the market Helal Miah explains what it means for investors.
Restructuring and Amazon partnership leads Morrisons to remain upbeat for the future
Morrisons feels the positive impact of restructuring, enhanced product offering and food inflation
The full year results released from Morrisons today reflect the drastic changes that the group made after the challenges faced in the industry from the German discount retailers. Indeed, the supermarket seems to be roaring back into health and maintaining market share.
Group like for like sales were up by an encouraging 2.8% and reported revenues up by 5.8% to £17.3bn. This was an improvement on the previous year’s growth and beat the market’s expectations. The improved operating performance meant sales fed down to the bottom line better as the underlying operating profits rose by 12.2% to £374m
Promising partnership with Amazon leads Morrisons to remain upbeat for the future
The reforms mean that there has been an increase in product ranges and store refurbishments, both of which has brought shoppers in, and the company has also benefitted from the rise in food price inflation over the last couple of years. The group has been slow to enter into the online area but its partnership with Amazon holds much promise along with the rollout nationwide to supply McColl’s convenience stores.
Cash payouts virtually double as 4p special dividend is announced
The outlook today was confident and upbeat, and it is worth acknowledging that the group enters its third consecutive year of sales growth. Management believe they are now more competitive and can offer a differentiated product for the customer. With the much improved cash flows, net debt falling below their £1bn target and the pension fund being in credit, this has enabled management to lift the ordinary dividend by 12.2% and pay a special dividend of 4p, rewarding investors with cash payout almost twice that of the previous year.
We currently recommend Morrison’s as a ‘hold’ for medium risk investors
We do, however, believe that competition in the sector is here to stay and find it difficult to see that margins can return to levels of several years ago. The UK retailers are in a tough economic environment and Morrisons trades at a higher valuation than its peers. While the income yield will improve and the shares may look attractive to those investing for income, we maintain our ‘hold’ recommendation for those willing to accept a medium level of risk.
All information given including prices, yields and our opinion is correct at the time of publication. Our opinions on investments can change at any time and for our latest view please go to www.share.com. To understand how our Investment research team arrive at their views please read our Investment Research Policy.