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Morrisons share price: 4 things to watch out for in its 2018 results

The British supermarket will unveil its full-year results on Wednesday morning while the company is in the midst of a major turnaround in a bid to drive growth and stave off competition from rivals.

Morrisons Source: Bloomberg
Morrisons Supermarket United Kingdom Sainsbury's Tesco Asda

Morrisons is in the middle of executing a major turnaround strategy that aims to ‘fix, rebuild and grow’ the business at a time when the British supermarket chain is under significant pressure from discount rivals like Lidl, Aldi and Asda.

On Wednesday, the supermarket will unveil its full-year results which will offer investors some insight into how successful its turnaround strategy has been so far, with market analysts expecting good things from British grocer.

Morrisons full-year guidance

According to a company-compiled consensus, Morrisons is expected to deliver a strong set of 2018 results, with analysts forecasting that the supermarket will a 4.5% growth in like-for-like sales this year compared with 2.8% the company recorded last year.

The British supermarket is also expected to post a 8.8% increase in underlying pre-tax profit of around £407 million, helping the company increase its underlying earnings per share by 7.5% to 13.11p and lift its full-year dividend to shareholders by 12.9%.

Morrisons wholesale and online businesses

Over the course of its fiscal year, Morrisons wholesale business has been driving it forward, helping the company deliver 12 back-to-back quarters of like-for-like sales growth.

A major component in the success of its wholesale business has been its supply deal with convenience chain McColl’s. This partnership has been so successful in fact that in the first half of 2018, the pair did enough to exceed annual wholesale targets of £700 million.

In January last year, Morrisons was supplying just 25 of McColl’s stores across the UK. Unsurprisingly, given that the pair have smashed sales targets, the British supermarket chain is now supplying more than 1300 stores and plans to add the remaining 300 in due course.

The increase in sales volumes from the McColl’s partnership has spurred Morrisons to look at new supply deals, with the company agreeing terms with MPK Garages, a owner of petrol forecourts, as well as plans to export more than 100 own-labelled products to Big C stores in Thailand. Investors will be looking to see if Morrisons will announce any more details on these partnerships or any news of new supply deals struck with overseas stores.

Morrisons turnaround strategy

Supply deals are one part of Morrisons wider turnaround strategy that has seen the supermarket chain refurbish its hundreds of stores across the UK under its ‘Fresh Look Programme’. On top of revamping all its existing premises, the company has opened three new supermarkets over the course of the 2018 fiscal year, with its steady expansion efforts expected to generate new space sales of up to 0.3%.

Investors will also be looking to see how successful Morrisons has been at attracting more customers through its doors via various partnerships, including one with British shoe repair specialist Timpson that saw the company install outlets in over 200 of Morrisons supermarkets in the first half of 2018 alone.

Morrisons also said it was utilising excess land by inviting restaurants to set-up shop at its supermarkets, leading to an initial deal that saw a McDonald's drive-thru open on one site last August. All of these figures are important parts of Morrison’s strategy and investors will be hoping that progress remains on schedule and on budget.

Morrisons challenging 2019 outlook

The British supermarket industry is undergoing a significant amount of change, with many players in the sector looking to reinvigorate their struggling businesses via inorganic growth strategies. Sainsbury’s attempted to merge with Walmart-owned Asda only to have the deal shot down by UK regulators, while Tesco successfully completed its tie-up with Booker Group and Marks & Spencer recently came clean about its joint venture with food delivery service Ocado.

Morrisons has broke the trend, however; opting for organic growth, remaining committed to its turnaround strategy. So far, the plan has reaped results, with its grocery business proving itself to be far more resilient to the industry’s challenges than many of its rivals.

But Morrisons is not short of its own problems. The company continues to lose market share to its more aggressive rivals and with M&A driving consolidation in the sector competition is intensifying at an alarming rate. Add Brexit to the mix, with the March 29 deadline just weeks away, there are a myriad of headwinds that threaten to detail Morrisons turnaround strategy. But despite all the pressure, there is a long-term Hold recommendation on Morrisons, which is heavily weighted to the buyside with eight brokers believing the supermarket chain is undervalued.

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