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Morrison’s to put UK supermarkets under spotlight

Published: 17:53 02 Nov 2016 GMT

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The state of the nation's supermarkets is always of interest to investors and shoppers alike and the fourth biggest grocer, WM Morrison Supermarkets PLC (LON:MRW) posts quarterly numbers on Thursday.

Among the themes in the trolley likely to be of interest are how the turnaround is going and what is the impact of the weaker pound, and by extension, June's Brexit vote.

Following Marmitegate

The results come after the already high profile spat between rival Tesco (LON:TSCO) and huge supplier Unilever (LON:ULVR) over potential price hikes for consumers on everyday goods such as Marmite.

Scribes at banking titan HSBC reckon Morrison's will post a fourth consecutive rise in like-for-like sales - forecasting a 1.5% for the September period.

But that's  lower than the 2% growth the supermarket reached in the preceeding  second quarter.

HSBC notes that the grocer has strengthened the balance sheet, which will help to protect it as price competition and costs start to rise. However, he said the company still remains in a weak strategic position amid its sector peers.

Goldman looks at rising food costs

Interestingly, last week Goldman repeated 'sell' ratings on Morrisons, Tesco (LON:TSCO) and Sainsbury (LON:SBRY), and notably looked at the impact of food costs rising for the Big Four.

Food input costs were up over 10% in September, the type of rise that has historically led to food inflation of over 5% for the UK consumer (Food CPI), but Goldman is sceptical the firms will pass this rise onto customers.

The last time UK consumers were asked to pay price rises over 5%, in 2011, this marked the start of a 5-year period, where the big 4 grocers lost a total of 526 basis points (bp) of market share, while discounters Aldi and Lidl gained 520 bp,  said analyst Rob Joyce.

With Tesco trading on a 2.2% 2018 estimates free cash flow yield   and Morrison on 4%, Goldman does not believe these stocks are pricing in any margin risk from rising food inflation, so it remains rating them a sell, it says.

Its price target for Morrison's is 180p against a current price of around 221p.

Conversely, chartist Zak Mir  reckons the grocer has seen something of a turnaround over the past year, as he puts the share price chart under the spotlight.

He reckons it could rise to around 260p in one to two months, Mir says in a Tip TV segment for Proactive Investors.

Mir notes that the price recently bounced off its 200-day moving average, an event he says gives the share positive momentum.

Some significant announcements -

Interims: Howden Joinery Group PLC (LON:HWDN), Inmarsat Plc (LON:ISAT), Lancashire Holdings Ltd (LON:LRE), Randgold Resources Ltd (LON:RRS), Tate & Lyle PLC (LON:TATE)

Trading update - Glencore plc (LON:GLEN)

Finals: Matchtech Group Plc (LON:MTEC)

Trading statements: Coca-Cola HBC (LON:CCH), Croda International PLC (LON:CRDA), Morrison (Wm) Supermarkets PLC (LON:MRW), Regus PLC (LON:RGU), RSA Insurance Group PLC (LON:RSA).

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