Steps to combat competition start to bear fruit.
Latest results from Morrison’s shows the retailer has a spring in its step
- Investors welcome announcement of a special dividend boost of 4p.
- Positive results reflect measures the retailer has put in place to combat competition from discount retailers.
- We continue to recommend the shares as a ‘hold’ for medium-risk investors seeking a balanced portfolio.
This morning’s results on the whole is a pleasant read for investors and shares have risen by roughly a couple of percentage points at the open even though its EPS figures fell slightly short of expectations. Total revenues increased by 2.7% to £17.7bn, profit before tax and exceptionals were up by 8.6% to £406m, yet more pleasing was like for like sales growth excluding fuel and VAT was even stronger at 4.8%. With the good numbers, the management have announced that the dividends will be supported by a further special dividend of 4p.
Today’s good numbers partly reflect the hard work and deep restructurings that have been made over many years since the German discounters ate away at the competition. However, while growth in its retail/supermarkets moderated over the year, much of the growth in total revenues will be explained by the acquisitions and partnerships made which has led to their wholesale division generating sales of £700m well ahead of target.
In a challenging general retail environment and with still fierce competition in the grocery market, these results show Morrison’s strategies set out a few years back is paying dividends. However, it is unfortunate for Morrisons that they are now unlikely to pick-up stores from the Sainsbury-Asda merger which is looking unlikely. The competition is here to stay and margins in the sector are unlikely to reach historic levels, which leads us to remain cautions on the sector and we can therefore only recommend Morrisons as Hold at best for investors looking for a balanced return and willing to accept a medium level of risk.
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