Supermarket chain WM Morrison (MWR) benefitted from a surge in demand for its products during lockdown – like-for-like sales (excluding fuel and VAT) increased by 9 per cent year-on-year in the six months to 2 August. Growth accelerated during the second quarter, led by a 11 per cent like-for-like sales rise within the retail segment.
Total revenue was pulled down by fuel sales falling by more than a third as fewer vehicles were on the road. While fuel sale volumes remain below normal levels, they are said to be gradually improving. If fuel is stripped out, overall revenue increased by 9 per cent to £7.6bn.
Morrisons has stepped up its digital efforts as more consumers turn to online food shopping – a trend that has been turbocharged by Covid-19. Weekly home deliveries for its website more than doubled during the first half, and in response to the higher demand, the group has increased its online and home delivery capacity by fivefold. It now offers five different online channels, including the expanded ‘Morrisons on Amazon’ service which provides same-day delivery, and a partnership with Deliveroo to drop off groceries in as little as half an hour.
The problem with online retail is that it is lower margin. So, with revenue during the half being weighted towards lower margin online sales and grocery categories – an effect that was exacerbated by the fact that its higher margin ‘food-to-go’ and ‘Market Street’ service counters were temporarily closed – adjusted pre-tax profit dropped by a quarter to £148m.
Profits were also squeezed by £155m of pandemic-related costs, the biggest of which was from taking on more staff – it recruited an additional 45,000 temporary workers to cover absences and increase capacity. These costs were partially mitigated by four months of business rates relief and for the full year, Morrisons believes that Covid-19 costs will be “broadly offset” by business rates savings.
Amid lower fuel sales and prices, faster payment to suppliers and stock building, the group saw a £284m working capital outflow. This pushed free cash flow generation into the red and net debt has climbed by 14 per cent from the February year-end to £2.8bn. Even so, Morrisons is handing shareholders an increased interim dividend, although the special payout relating to last year remains deferred.
Analyst consensus places adjusted pre-tax profit at £437m for the full year to 2 February – up from £408m in 2020 – rising to £463m in 2022.
| WM MORRISON (MRW) | ||||
| ORD PRICE: | 187p | MARKET VALUE: | £ 4.48bn | |
| TOUCH: | 185-186p | 12-MONTH HIGH: | 210p | LOW: 158p |
| DIVIDEND YIELD: | 3.7% | PE RATIO: | 17 | |
| NET ASSET VALUE: | 186p | NET DEBT: | 63% | |
| Half-year to 2 Aug | Turnover (£bn) | Pre-tax profit (£m) | Earnings per share (p) | Dividend per share (p) |
| 2019 | 8.83 | 202 | 6.56 | 1.93 |
| 2020 | 8.73 | 145 | 2.92 | 2.04 |
| % change | -1 | -28 | -55 | +6 |
| Ex-div: | 24 Sep | |||
| Payment: | 30 Oct |
