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Resilient Morrisons announces another special

The group grew profits significantly in the period, despite tough comparatives
September 12, 2019

WM Morrison (MRW) is making hay while the sun isn’t shining. The supermarket’s performance in the first half of the year came in ahead of expectations, with adjusted pre-tax profits up 5 per cent to £198m despite unfavourable weather and an extremely strong prior period, which combined a hot summer, the men’s football world cup and a royal wedding. 

IC TIP: Hold at 202p

On a statutory basis, the profit and EPS improvement looks far more impressive, although this is largely due to a slew of non-recurring exceptional costs last year related to increased stock provisioning.

While Brexit uncertainty persists and consumer confidence is low, the group has been investing in price cuts for hundreds of items. This achieved the desired volume improvements, and the group still managed to deliver a 20 basis point-expansion in the cash profit margin. Free cash flow was up 7 per cent to £244m, prompting the group to announce a special dividend of 2p a share, its third consecutive year of special payments. 

Like-for-like growth of 1.3 per cent in the wholesale business offset a 1.1 per cent decline in the retail business in the period, and as the group works its way through its “Fix, Rebuild and Grow” strategy, management is hunting for ways to strengthen the wholesale business further. 

To do this, it has unveiled a raft of new initiatives. The most notable of which is the extension of Morrison’s existing relationship with Amazon. The group announced an expansion of its ‘Morrisons at Amazon’ store on Amazon Prime Now in June, and has now signed an agreement to partner over a number of years, rather than the rolling arrangement previously in place. The current Prime Now store will also expand its coverage from four cities into at least five new ones, including Glasgow and Liverpool. Alongside this, the group has formed or expanded partnerships with fuel retailers Harvest Energy and Rontec, as well as an export deal with Middle Eastern grocer Y-International. 

Analysts at Shore Capital are forecasting adjusted pre-tax profits of £412m, giving EPS of 13p for the full year, up from £396m and 12.6p in 2019.

WM MORRISON (MRW)   
ORD PRICE:202pMARKET VALUE:£ 4.84bn
TOUCH:201.5-202p12-MONTH HIGH:262pLOW: 177p
DIVIDEND YIELD*:3.3%PE RATIO:16
NET ASSET VALUE:181pNET DEBT**:22%
Half-year to 04 AugTurnover (£bn)Pre-tax profit (£m)Earnings per share (p)Dividend per share (p)
20188.801363.801.85
20198.832026.561.93
% change+0+49+73+4
Ex-div:26 Sep   
Payment:01 Nov   
*Does not include special payment of 2p a share, which will be paid alongside the interim dividend **Excludes lease liabilities of £1.43bn