Shares rise and pre-tax profit is up as supermarkets are busier than ever amid coronavirus lockdown
Morrisons posts profit rise as shoppers stock up
- Shares up roughly 6% following the release of their annual results
- Adjusted pre-tax profit was reported to be £435m compared to £406m year-to-year, despite like-for-like sales falling 0.8%
- The Board declared a final dividend of 4.84p for a full-year pay-out of 8.77p compared to 12.6p the previous year
- Recommendation: Morrisons continues to suffer from an intense competitive landscape in a crowded sector so we recommend this stock as a Hold
Some of the lighter news this morning comes from the retail sector. Morrisons’ shares in early market are up roughly 6% following the release of their annual results and the supportive UK government announcement yesterday. The UK large grocer reported an adjusted pre-tax profit of £435m compared to £406m despite like for like sales falling marginally by 0.8%, highlighting good operational progress. The board declared a final dividend of 4.84p for a full-year pay-out of 8.77p compared to 12.6p the previous year. The Group had planned to pay a special dividend but, considering the uncertainty, opted to postpone this.
What investors will have taken comfort in these results is the response from management towards the virus outlook. The Group have committed to ensuring colleagues, customers and suppliers’ transparency providing immediate payments, pay guarantees and the expansion of their online services to customers. As we have seen in recent days through Ocado, the online proposition for grocery deliveries is appealing particularly in times like these so it makes strategic sense to focus efforts on this segment. On top of this, Morrisons benefit from a strong balance sheet with robust cash-flows and healthy cash levels of £305m alongside access to a £1.45bn credit facility, helping to relieve investor angst over liquidity concerns.
Looking ahead its clear there’s a lot of uncertainty for the Group, however announcements surrounding developments of their online proposition and healthy supplier/customer relationships should help see the Group through these difficult times. In our view, the Group do suffer from an intense competitive landscape in a crowded sector and after a cut in their dividend although expected recommend this stock as a ‘HOLD’, for income seekers willing to accept a medium level of risk.
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