Interactive Investor

ii view: Morrisons optimistic ahead of sporting summer

21st May 2021 11:13

Keith Bowman from interactive investor

Partnerships with Ocado and Amazon and a forecast dividend yield of 5%. Buy, sell or hold?

First-quarter trading update to 9 May

  • Total sales up 5.3% (including fuel)
  • Like-for-like excluding fuel up 2.7%, and up 4.7% including fuel
  • Online sales up 113% and wholesale like-for-like sales up 21% compared to Q1 2020
  • Guidance for the current financial year to 31 January 2022 unchanged

Chief executive David Potts said:

"We've had an encouraging start to the year, with positive like-for-like sales and some good momentum across Morrisons both on a one and two-year view. We said back in March that we expected to grow profits and reduce debt in the current year and I'm pleased to be both reiterating that guidance today and looking forward to a year of meaningful profit growth in 2022/23. 

"The pandemic is not yet over, but it is in retreat across Britain and there is much to be positive about as something approaching normal life begins to take shape. Our forecourts are getting busier, we are seeing encouraging recent signs of a strong rebound of food-to-go, take-away counters and salad bars, and our popular cafés will soon fully reopen. The nation has a summer of socialising and sport to look forward to and we'll all be able to rediscover the joys of meeting up and eating well together. Whichever way consumers choose to enjoy their renewed freedom, we will be there for them.”

ii round-up:

Morrisons (LSE:MRW) operates almost 500 outlets across the UK along with a home delivery service. 

Its employs over 100,000 staff with an average of 11 million customers passing through its doors every week. 

Its online business is currently conducted through arrangements with both Ocado (LSE:OCDO) and Amazon (NASDAQ:AMZN). It also supplies over 1,200 McColl's (LSE:MCLS) stores with its branded products.

For a round-up of this latest trading update, please click here

ii view:

Morrisons continues to pursue a strategy of fix, rebuild, grow and sustain. Management priorities include simplifying and speeding up the organisation and being naturally digital. Recent developments include the conversion of 25 McColl stores to Morrisons Daily, and commitments to both be supplied by 'net zero'-carbon British farms by 2030, and to remove all plastic bags from its stores over the next year.

A further £27 million of direct Covid costs were suffered during this first quarter, although largely during the early weeks under stricter lockdown and in relation to staff sickness and additional marshals required. Management profit estimates for both the current and following financial year forecast growth, aided by both reduced Covid costs and returns of activities such as fuel sales and the opening of its instore cafés. 

For investors, tougher comparatives over coming quarters lie ahead. Rivals such as Tesco (LSE:TSCO) and Sainsbury's (LSE:SBRY) are battling hard with revamped strategies, while sector competition including the discount operators Aldi and Lidl remains intense. 

More favourably, online sales growth is currently impressive, aided by partnerships with both Ocado and Amazon. Its wholesale business and relationship with McColl’s continues to evolve, and potentially low debt going forward could see increased shareholder returns. The historic dividend yield is already 4% and rises to around 5% on analyst's future estimates. In all, and given a current analyst fair estimate valuation of 199p per share, income orientated investors at least may find appeal. 


  • Attractive dividend payment (not guaranteed)
  • Growing online sales


  • Rising commodity and freight inflation
  • Intense sector competition

The average rating of stock market analysts:


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