Merry Christmas for Morrisons

Drift at supermarkets group is a gift-wrapped buying opportunity
Thursday 09 Nov 2017 Author: James Crux

A downwards drift at WM Morrison Supermarket (MRW) presents a buying opportunity before the grocer unwraps its Christmas trading update (9 Jan 2018). Chief executive David Potts’ charge has reported an eighth consecutive quarter of like-for-like sales growth, up 2.5% (ex-fuel) in the third quarter to 29 October.

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Though representing a modest slowdown on the prior quarter, Shore Capital believes Morrisons ‘enters the forthcoming “peak” trading period in good shape and on the front foot’. Shielding cash-strapped shoppers from the impact of lower sterling, Morrisons’ Price Crunch and Way Down promotions are pulling in consumers and its Best premium own label range has been dramatically expanded in time for Christmas.

Vertically integrated, the grocer is building out its wholesale business with Amazon UK and forecourts operator Rontec, while preparing to supply neighbourhood retailer McColl’s (MCLS) from January 2018 in a deal that revives the Safeway label.

Forecasting a rise in pre-tax profit to £365m (2017: £337m) this year ahead of £407m next, Shore stresses Morrisons is ‘a business with a strong financial constitution’. Year-end net debt will have fallen below £1bn for a comfortable leverage ratio of 1.1 times, Morrisons has a strong balance sheet with freehold backing, not to mention a progressive dividend and a pension surplus.

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