It’s all about the cash - or the perceived lack of it - that at least appears to be the consensus among analysts picking through first-half results from Wm Morrison Supermarkets PLC (LON:MRW).
Thursday’s interims were ahead of consensus, yet the stock fell 5% as it succumbed to a wall of selling.
READ: Morrison's shares fall as like-for-like sales growth slower in the second quarter then the first
“Morrison has been remarkably cash generative in recent years and we think that has been a key reason for its strong share price performance,” Barclays Capital (Barcap) analysts said in a note in the wake of the numbers.
“Cash generation was again strong in the first-half, but the company noted that debt would likely stay broadly flat in the second - suggesting much more limited free cash flow generation.”
This point was also picked up by and expanded upon by the highly-ranked food retail team at Deutsche Bank.
They said money from property disposals and major working capital “inflows” were coming to an end for Morrisons.
Deutsche did increase its 2017 EPS forecast by 5% to reflect the earnings ‘beat’. It also increased its price target 10% to 260p, but maintained its ‘hold’ rating on the stock.
READ: Morrisons notches up seventh consecutive quarter of like-for-like growth as recovery continues in first half
BarCap reduced its valuation to 215p a share from 220p as it stuck with its ‘underweight’ rating.
“Even with [the] sharp share price fall, we estimate Morrison's free cash flow yield at below 5% for the next three years collectively - compared with an average yield of around 6.5% for the wider sector,” BarCap said.
“One could argue that Morrison's solid balance sheet merits a lower yield, but we struggle to argue that the spread should widen any further.”
Meanwhile, UBS trimmed its target price for Morrisons to 239p from 248p, keeping a ‘neutral’ stance on the stock.
The Swiss bank’s analysts said: “Decent print in what was a challenging operating environment, but the market may be underwhelmed by the lack of clear targets on 'self-help' opportunity.”
After falling around 5% yesterday, Morrisons’ shares on the FTSE 100 index edged 0.2%, or 0.4p higher to 232.8p in morning trade today.