Morrisons shares bid higher despite difficulties

Shares sprung to life after these figures, but what does our head of markets think?

This rather tepid trading update from Morrisons (LSE:MRW) will do little to assuage doubters of the stock.

The fact that there was no specific reference to the Christmas trading period itself will be viewed as dubious, particularly given the fact that one of its rivals at a similar price point, Aldi, was yesterday shouting its festive success from the rooftops. 

Group like-for-like sales including fuel showed a decline of 2.8% in the first 22 weeks of the company’s second half ended 5 January, with an uninspiring contribution from Wholesale, and the figures compare particularly poorly across the piece given a relatively buoyant period this time last year. 

Lower sales at McColl’s (LSE:MCLS) were largely responsible for the lack of inspiration from Wholesale, and the challenging and uncertain trading conditions which the group bemoaned add to the inevitable questions over the shares. From a wider perspective, the company’s lagging online presence and its unwillingness or inability to compete strongly on price alone are further headwinds.

Source: TradingView Past performance is not a guide to future performance

There are some rays of light, however. The previously announced special dividend gives the stock a prospective yield of around 4% and is indicative of a well-managed balance sheet. 

Meanwhile, full-year profit guidance has been maintained despite the lack of fireworks over the period, perhaps largely due to Morrisons’ focus on the reduction of costs. Any improvement at McColl’s will feed through quickly, too, while the extended tie-up with Amazon (NASDAQ:AMZN) also underwrites expected growth. 

The incremental improvements which Morrisons has tended to display over recent times have been part of a turnaround plan. This has left the business leaner and therefore more equipped to deal with its competition.

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Even so, this transformation is an ongoing process for which there can be few, if any, slip-ups. The competition will maintain its intense pressure and over this particular trading period, Morrisons’ performance should not prove difficult for others to emulate.

The shares have also been uninspiring over the last year, having dropped 11%, which compares to an 11.2% gain for the wider FTSE 100 in the same period. The initial share price reaction to the update has perhaps had the benefit of a broader market tailwind, but in terms of the general consensus, the shares remain a hold, with the prospects of better value elsewhere in the sector.