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Morrisons is part of the so-called big four supermarkets, but it is in fourth place and a distant one at that. The troubled retailer is the worst performer of a struggling industry, and the market isn’t expecting much from its full-year update.
In the first six months of the year the retailer revealed a 7.4% drop in like-for-like sales (excluding fuel), and a decline in pre-tax profits of over 30%. The deep-discount supermarkets like Aldi and Lidl are eating into the client base of traditional UK grocery shops, and even though the top end of the sector is performing well, it is the squeezed middle that is feeling the pinch.
Morrisons is not alone in experiencing lower revenue and profits as Tesco and Sainsbury’s are experiencing similar problems, but the Bradford-based retailer has come off feeling the pain more than most.
The launch of Morrisons’ online delivery service in conjunction with Ocado has helped both parties, but Tesco was well ahead of the curve when it launched its online shopping site in 2000. The online division is an area that Morrison is looking to expand and, as I stated previously, IGD predict the online grocery industry is set to double in size within four years.
Dalton Philips was replaced as CEO after the food retailer announced disappointing Christmas results, and was replaced by David Potts who was previously at Tesco. Mr Potts will be careful not to make the same mistakes as Tesco, and his focus will be for Morrisons to re-establish its own identity.
The consensus for Morrisons’ full-year figures is for revenue of £17.08 billion and adjusted net income of £316 million. These represent a 3.3% decline in revenue and a 45% drop in adjusted net income. The supermarket will also announce its second-half figures on the same day, and the market is expecting revenue of £8.47 billion and adjusted net income £135 million. The first-half numbers disappointed dealers, with revenue coming in at £8.49 billion and adjusted net income at £134 million against market expectations of £8.5 billion and £162 million respectively.
Equity analysts are bearish on Morrisons, and out of the 23 ratings, seven are buys, five are holds and 11 are sells. The average target price is 188p, which is 10% above the current price. Investment banks are moderately bullish on troubled rival Tesco, and out of the 26 recommendations, eight are buys, 13 are holds and five are sells. The average target price is 236p, which is 2.8% below the current price.
The share price has been in an upward trend since November and 200p is providing support. If this level is held the resistance at the 215-219p region may be brought into play, and move through this area would make 230p the target. A drop below 200p will make 190p the initial target, and puncturing of this level will put 180p into view.