WM Morrison falling behind

The grocer will report its first-quarter figures on Thursday 7 May, and its new CEO David Potts will be aiming to turn the retailer around.

WM Morrison
Source: Bloomberg

December 2014 saw WM Morrison’s profits drop to an eight-year low last, which lead to an exit from Dalton Philips who held the top job for five years. Mr Philips was replaced by Mr Potts who came from Tesco.

As I stated in my Sainsbury’s article, the UK supermarket sector is engaged in a price war, and Morrison’s announced a £1 billion price-slashing plan for the next three years. Even though, those plans were mapped out under the leadership of Mr Philips, the company chairman Andrew Higginson stated the firm is still pressing ahead with the price cuts. Morrison’s are already feeling the effects of the price war, and last year’s pre-tax loss was £792 million, compared with a pre-tax loss of £176 million from the previous year.

David Potts has a strong knowledge of the UK retail sector as he is a former executive director of Tesco, and he will be doing all he can to put Morrison’s back on track. Mr Potts knows that Morrison is in fourth place of the UK groceries, as the company was late to spot the opportunities within online shopping, and convenience stores.

Being too aggressive with a catch up plan can could cause the company harm in the short-term, and Morrison’s has already fallen out of favour with shareholders, and it can’t afford another blot to its copybook. The Bradford-based company increased its full-year dividend by five percent to 13.65p, but it may not be as attractive this year, as the latest update stated the dividend this year will be at least ‘5p’. Morrison’s dividend is one of the few positive aspects the company has going for it, and it if comes under threat we will see institutional investors walk away from the stock.

WM Morrison will reveal its first-half numbers in September, and the market is expecting revenue of £8.17 billion, and this compares with the previous year’s first-half revenue of £8.32 billion. The supermarket will reveal its full-year figures in 2016, and the market is expecting revenue of £16.6 billion, and adjusted net income of £276 million. This represents a 1% drop in revenue and an 18% increase in adjusted net income.

Equity analysts are very bearish on Morrison’s, and out of the 23 ratings, six are buys, six are holds, and 11 are sells. The average target price is 193p, which is 3.7% above the current price. Investment banks hold a very bullish outlook on Marks & Spencer’s, and out of the 31 recommendations, 14 are buys, 11 are holds, and six are sells. The average target price is 557p, which is fractionally higher than the current price.

The share price has been losing ground since January 2012, and the 200-day moving average at 180p is the initial downside target, and a move through that metric will put 170p in sight. Despite the longer-term downward trend, the stock has been moving higher since November, and 200p is the first upside target, and a move bring the resistance at 210p into play. 

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