Morrisons is muddling along

Morrisons will announce its December trading statement on 12 January, and the Christmas period is crucial to the company.

Morrisons
Source: Bloomberg

The company will reveal its full-year numbers in March, and dealers are expecting revenue of £16.12 billion and adjusted net income of £218 million. These estimates equate to a 4.2% drop in revenue and a 3.25% fall in adjusted net income.

The supermarket will report its second-half figures on the same date, and traders are anticipating revenue of £8.09 billion and adjusted net income of £121 million. That compares with the first-half revenue and adjusted net income of £8.06 billion and £87 million respectively.

The supermarket continues to struggle within a difficult sector, with the company blaming food price deflation for the drop in third-quarter sales released in November. Morrisons is deeply engaged in the UK supermarket price war, and is coming off the worse for it. Meanwhile, German discount retailers like Aldi and Lidl are expanding their market share.

The firm has had a turbulent few years and even though David Potts, the new CEO, has been in the top job for many months, there is no sign of a turnaround in sight.

The company closed a number of unprofitable stores and disposed of its collection of convenience shops, but this wasn’t enough to satisfy shareholders. The company was late to the game in online shopping, and online revenue grew at a small rate in the latest quarter.

Major supermarkets are shifting their focus from a vast number of stores to a smaller number of carefully located outlets, and it appears that Morrisons is behind its rivals in this area too. The firm is cutting back on the number of promotional vouchers to shield itself from the falling prices, and the supermarket aims to make a bigger profit in the second half of the year. However, its prospects are still poor as the price war is crippling the company.

Investment banks are a touch on the bearish side when it comes to Morrisons, and out of the 22 ratings, four are buys, ten are holds, and eight are sells. Morrisons has the highest percentage of ratings attached to it out of the UK supermarkets. The average target price is 171p, which is 16% above the current price.

Equity analysts are bullish on Tesco, and out of the 26 recommendations, nine are buys, 13 are holds, and four are sells. The average target price is 211p, which is 47% above the current price.

Technical analysis from Joshua Mahony MSTA, Market Analyst at IG.

Morrisons’ shares have been trending lower throughout the past ten months, following on from a strong first two months of 2015. Unfortunately, this has become somewhat of a regular occurrence, with the share price falling 55% in the past four years.

More recently we have seen a bounce from the 140p support level (2003 low), yet we have not seen any concrete signs that this represents the bottom for Morrisons and thus a bearish view remains for now. Below 140p, the next major level of note is 110p (2000 low), which highlights the significance of that support level.

A bearish view thus remains and we would need to see a move back above the 158p resistance level to bring a chance of a short-term resurgence, with trendline resistance around 172p then coming into play.

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