Wm Morrison (MRW) has reported its most successful quarterly sales performance for nearly a decade. A second-quarter 6.3 per cent improvement in underlying revenue helped half-year like-for-like sales rise by 4.9 per cent overall (excluding fuel and VAT), while total revenues climbed by 4.5 per cent to £8.8bn. However, several accounting technicalities, including a £33m net adjustment to cover bond repayments and a £28m fallout from changing estimated stock provisions, left reported profits down nearly a third at £142m. Cash repayment costs amounting to £30m and lower disposal proceeds also had a knock-on effect on free cash flow, although net debt still came down by £44m to £929m, while the group has confirmed another 2p special dividend to follow the 4p one-off return announced in March.
The second-quarter performance was helped by Morrison's new wholesale partnership with convenience chain McColl’s (MCLS). Following the collapse of wholesaler Palmer & Harvey last year, Morrison admits it was forced to move forward with supplying the first 1,300 MColl’s stores more quickly than expected. And while this led to higher-than-expected upfront costs, the board now expects to meet its target for £700m in annual wholesale supply sales ahead of schedule, and associated costs are due to fall in the second half. The longer-term target for £1bn-worth of wholesale revenues looks achievable given the two new deals signed post period-end to supply MPK Garages forecourt stores and Big C in Thailand. On a proportional basis, wholesale revenues contributed 2.8 per cent to underlying growth rates during the first half, while retail contributed 2.1 per cent.
Two new stores opened during the first half, adding 54,000 sq ft of space, while the group also extended its online service in the south of England and into Scotland for the first time. This means more than three-quarters of UK homes can now receive deliveries of online orders.
Analysts at Shore Capital expect pre-tax profit of £412m for the year ending January 2019, giving EPS of 13.1p, up from £369m and 11.8p in FY2018.
| WM MORRISON (MRW) | ||||
| ORD PRICE: | 262.8p | MARKET VALUE: | £6.22bn | |
| TOUCH: | 262.5-262.8p | 12-MONTH HIGH: | 271p | LOW: 200p |
| DIVIDEND YIELD: | 2.2%* | PE RATIO: | 25 | |
| NET ASSET VALUE: | 199p | NET DEBT: | 20% | |
| Half-year to 5 Aug | Turnover (£bn) | Pre-tax profit (£m) | Earnings per share (p) | Dividend per share (p) |
| 2017 | 8.42 | 200 | 6.9 | 1.66 |
| 2018 | 8.80 | 142 | 4.0 | 1.85 |
| % change | +5 | -29 | -42 | +11 |
| Ex-div: | 27 Sep | |||
| Payment: | 5 Nov | |||
| *Excludes special dividends | ||||
