Morrisons (MRW) unable to reach heights seen in 2018

Revenue growth pushes the share price up despite like for like sales dropping.

Article updated: 12 September 2019 11:00am Author: Helal Miah

  • Share rise 3% as market reacts to results showing revenues growth of 0.4% and pre-tax profits reaching £198mn.
  • Company expects retail like-for-like sales to improve in the second half of 2019.
  • With intense competition in the sector only set to continue, we recommend the shares as a ‘Hold’.

The supermarket’s results have shown like for like revenues grew by just 0.2% in comparison to the 4.9% during the same period last year. The shares are up by over 3% this morning since figures are better than anticipated. Total revenues grew by 0.4% to £8.83bn while the pre-tax profits before exceptional came in at £198mn, better than expectations and last year’s £188mn. The net debt remained relatively static but investors were also pleased by the interim dividend being supported by a special dividend taking the total for the period up by 2.1% to 3.93p.

While the numbers are better than expected, we should not let pass the fact the like for like sales during the second quarter fell by 1.9%. Management seems to put this down to unfavourable comparisons against the same period last year where we had the perfect mix of good weather, the football world cup and a royal wedding. However, we know from the latest Kantar findings that Morrisons have been more active than most with deals and promotional activity and still saw like for like sales fall by more than its rivals.

Our view on Morrisons - Hold

Investors are pleased to see the company expand its wholesale partnership with Amazon and the successful conversion of some McColls stores under the Morrisons brand. However, we remain wary of the intense competition in the sector where we don’t foresee historic margins ever returning as Aldi and Lidl continue to take market share. We therefore at best can only recommend a ‘Hold’ for Morrisons for investors willing to accept a medium level of risk.

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Helal Miah portrait photo
Helal Miah

Investment Research Analyst

After graduating with an economics degree from University College London, Helal started his career within private banking at Smith & Williamson Investment Management and later held analyst and fund manager roles with the Industrial Bank of Japan, Schroders and Mitsubishi Corporation. He is a chartered fellow of the Chartered Institute for Securities & Investment.