Morrisons shareholders shrug off Covid concerns

A rough first half for supermarket chain Wm Morrison (MRW), complete with gathering logistical problems, would be the sort of thing that might normally dent its share price, but given the ongoing battle to buy the business between a pair of US private equity groups, it barely budged.

The company reported a 37 per cent decline in adjusted pre-tax profit to £105m, citing numerous Covid-19 effects. Lower second quarter revenues reflect the spike in the comparative period last year as people stocked-up once lockdowns began, together with an additional £93m more in business rates this year. Matters weren't helped by the ongoing effect of social distancing measures - its in-store cafes remained closed until May, for instance.

Like its competitors, it is also dealing with “sustained supply chain cost increases” as it wrestles with higher commodity and freight costs, as well as the HGV driver shortage. The company expects “industry-wide retail price inflation” during the second half, but said it will look to mitigate these and work to keep shelves filled.

"This is a strange earnings announcement for Morrisons because for once the numbers aren't that material,” said Ross Hindle, retail sector analyst at Third Bridge. “Everyone is distracted by a potential deal, which continues to drive the share price.”

The board had recommended that shareholders accept the higher of the two offers it has received – a 285p per share bid by Clayton, Dubilier and Rice, which trumped a 272p bid from Fortress Investment Group. Neither offer is final, though, so the grocery chain has confirmed that it is in discussions with the Takeover Panel to launch an orderly auction process, with bidding process expected to run until late October. The share price remains higher than CD&R’s bid, suggesting that investors expect this fight will go the distance, but either of the rival bids represents a sizeable premium to the share price prior to the offer. Accept.

Last IC view: Sell, 278p, 06 Aug 2021