Wm Morrison Supermarkets PLC (LSE:MRW)’s share price emerged unscathed from a set of interim results that some City watchers deemed “a bit disappointing”.
The grocer warned of higher prices caused by more commodity and freight inflation, as well as the shortage of HGV drivers.
READ: Morrisons expects price inflation from higher commodity costs, HGV drivers shortage
It also posted a 37.1% drop in profits to £105mln due to £41mln of Coronavirus (COVID-19) direct costs, plus £80mln lost profit in cafés, fuel and food-to-go.
The FTSE 250 group stressed earnings will improve in the second half of the year and will be fully recovered in the next financial year, although by then it will have probably ended up in private equity hands.
“We doubt that today’s interims would have normally done much to help the Morrisons share price, but they are very unlikely to dampen the buying interest from private equity rivals, CD&R and Fortress, and the formal auction later this month is likely to see the bidding top the 300p level,” said independent retail analyst Nick Bubb.
According to Michael Hewson, chief market analyst at CMC Markets, today’s update is an opportunity “to look under the bonnet to find out what all the fuss is about”.
“While most of the talk has been of the value of its assets and low debt levels, there is also a decent business underneath, albeit in a very competitive market, with the UK’s 4th largest supermarket squeezed between the likes of Tesco and Sainsbury, and the young upstarts of Aldi and Lidl,” he commented.
“The bigger question is whether the business in question is worth what the two bidders are looking to pay, or whether today’s numbers prompt a reassessment on the part of one or other of the interested parties.”
Morrisons has recommended the 285p per share offer by CD&R, though Fortress can still come back with a higher bid now that the pair are at auction – but would it even be worth it?
“The acceleration of the Morrisons rebrand roll out to McColl's stores and the expansion of Morrisons on Amazon is a welcome trend, with opportunities to significantly increase online sales. But there could be hiccups on the way to a higher profit trajectory, given the looming supply chain issues for the industry,” noted Susannah Streeter, senior investment and market analyst Hargreaves Lansdown.
“Morrisons says it has a plan up its sleeve to mitigate potential cost increases, and stock shortages, but it’s hard to forecast just how tough the next few months may be. However with uncertainty looming Morrisons won’t want to look past its sell-by date, so there is likely to be intense focus now on getting a deal signed, sealed and delivered.”
Shares were flat at 293p on Thursday morning, having soared 64% in the past three months.