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McColl’s surges as Peel Hunt upgrades to ‘Buy’ in vote of confidence in Morrisons product branding trials

Published: 09:53 01 Mar 2019 GMT

McColl's store
The broker added that a wider roll out following the trial could be “gold dust” for the business

McColl’s Retail Group PLC (LON:MCLS) has been upgraded to ‘Buy’ from ‘Hold’ by broker Peel Hunt as analysts saw a trial to sell Morrisons-branded products at 10 of its stores as “a highly significant and highly positive development”.

In a note to clients, the broker said the trial, in which the supermarket chain would stock Morrison’s own-brand products, “could really help densities” and that it was confident the trial would work and be rolled out to more stores.

READ: McColl’s surges as hangover from Palmer & Harvey collapse starts to lift

“This gives McColl’s a real chance to see its LFL make progress again,” analysts said, adding that they would be surprised if the change in branding “didn’t make a major difference to sales levels”.

“This is a good opportunity to get behind the shares again, and one that we hadn’t seen emerging in the short term. The results of the trials won’t be known for a while and we don’t expect underlying performance to improve in the next few quarters, but the potential of the Morrisons Daily fascia is significant and could really move the dial medium term.”

The broker also maintained its target price of 80p on the stock, saying that for “a highly operationally and financially geared business” a wider rollout following the trial could be “gold dust”.

Morrisons has been supplying its products to McColl’s since January 2018 following the collapse of its previous supplier Palmer & Harvey the year before.

In early trading Friday, McColl’s shares were up 9.5% at 62p.

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