Morrisons is slowly digging itself out of the debt hole dug for it via the highly leveraged takeover by US private equity fund Clayton, Dubilier & Rice (CD&R), says Shore Capital.
That overleverage led Morrisons to dispose of its lucrative fuel activities to the private equity firm’s co-owned Motor Fuel Group and to explore selective store disposals, most of which are freehold, adds the broker.
It has also eased pressure on management, led by Rami Baitieh, now just over one year in the role, as they attempt to make the firm more competitive in a tough market.
Alongside a repayment of £200m of debt, Morrisons has extended the group’s term loan facilities from 2027 to 2030 alongside its revolving credit facility (RCF) to 2030.
Debt is now £3.8bn, materially lower than the £6.2bn that was placed upon the company’s shoulders post-deal but debt ratios remain elevated, nonetheless.
The pluses include Moody’s effectively upgrading Morrisons’ debt status from B2 to B1 and its view from negative to stable while the stores’ look and feel are better.
But this more manageable leverage has come at a notably high cost in more ways than one, especially the loss of fuel profits [EBITDA] at a time when margins have rebuilt post Asda’s takeover by Issa/TDR.
Overall, the firm is much more stable and showing signs of iterative improvement, which means we are a little more confident that it can trade positively through tougher second 2024 conditions.