Morrisons still looks good value

By Associate Editor David Stevenson Jan 10, 2012

David Stevenson

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What’s the latest from Morrisons?

Britain’s fourth-largest supermarket chain is feeling the pinch. Wm Morrison has just released a trading statement for the six weeks to 1 January. Excluding fuel and VAT, the company’s like-for-like sales (stripping out extra store space) were up just 0.7% on last year. That’s down sharply from the 2.4% growth seen in the third quarter, and was below City forecasts.
 
However, the grocer has still managed to lift overall turnover by increasing its selling area. Excluding VAT, but including fuel, overall sales rose by 5.6% year-on-year. The firm’s financial year ends on 29 January.

What’s the outlook for Morrisons?

Yet again, it’s that overused buzzword: 'challenging'.

UK consumers’ incomes are being squeezed as pay packets grow more slowly than inflation, and the country’s dole queues are getting longer. So the overall spending propects don’t look great.

But Morrisons says there’ll be no nasty surprises in its full-year figures. What’s more, the £1bn share buyback programme and the pledge to grow dividends by at least 10% a year for the next three years are also positive for shareholders.

The analysts

Of the 32 analysts surveyed by Bloomberg, 13 say “buy”, 15 “hold” and four are “sellers”. The average price target is 338p, around 10% above the current share price.

Wm Morrison (LSE: MRW)

Morrisons share price chart

Source: Bloomberg

Our view: Morrison has turned the corner strongly since 2006, and keeps delivering profits growth. Since our April 2011 tip, the shares have gained 12% and have outrun the overall market by 20%.

Even so, Morrison is standing on a forecast p/e for the next financial year of below 11, and has a prospective yield of 4%. That’s good value and more than factors in the difficult consumer scene. So we still like the stock.

You can find out more about Morrisons's history here.

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Published in Share tips | More articles by David Stevenson

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  • 1. David Lees

    (12 January 2012, 01:08PM)  Complain about this comment

    Obviously the market hadn't factored in bad news nor "more than factors in the difficult consumer scene"

    Down 6% two days after this article published.

    What now - buy more, hold, sell?

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