Exciting things on the horizon at Morrison
THURSDAY brought full year results from Morrison. The market reacted well to the news, sending the shares up 4.7 per cent.
First half retail like-for-like sales fell 1.1 per cent, but that reflects how the second quarter was up against a tough comparison – last year’s results were boosted by the men’s football World Cup and royal wedding.
Total revenue still rose 0.4 per cent, to £8.8billion, due to a small contribution from extra sales space and a 1.3 per cent like-for-like rise in wholesale business. That’s the part of Morrison that supplies other retailers – from petrol forecourts to Amazon. Perhaps more encouragingly, operating profit rose 2.4 per cent to £252million, as margins improved to 2.8 per cent.
However, for the group to sustainably build profits, it needs to stay competitive. Morrison’s lower price point means Aldi and Lidl are a threat, and the group has decided to cut prices even further. While this seems to have created an uplift in volumes, the prospects for raising margins, which currently stand at just 2.8 per cent, aren’t too exciting. While conditions in food retail remain challenging, the group has a couple of trump cards up its sleeve. For example, Morrison expect revenue from its wholesale supply deals to surpass £1billion soon.
However, we think the main reason to like Morrison is the fact it owns rather than leases the majority of its stores. That means cash flow is strong, and management have started allocating extra money to dividends.
The group announced a special dividend of 2p and an interim dividend of 1.93p. Therefore the total payment of 3.93p per share is 2.1 per cent higher than last year.
While conditions remain tough, we think the dividend looks stable enough and there’s scope for further specials, too. The yield is expected to be 5.1 per cent next year. “This article is designed for investors who make their own decisions without advice, if unsure whether an investment is right for you, you should seek advice. Shares can rise and fall in value so you could get back less than you invest.”