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Morrisons shares: will the supermarket chain be demoted to FTSE 250?

'Big Four' supermarket chain Morrisons is set to drop out of the FTSE 100 for the first time in five years due to the prospect of sluggish grocery sales during the post-Covid recovery. Where next for the Morrisons share price?

  • Morrisons share price plunges 11% in last six months
  • Full-year results due on 11 March
  • Morrisons’ wholesale arm now reportedly worth over £1 billion
  • Looking to trade the Morrisons share price online? Open an account today

Why is Morrisons at risk of FTSE 100 relegation?

FTSE Russell, the subsidiary of the London Stock Exchange (LSE), is due to publish its quarterly review of the performance of the UK’s blue-chip stocks in the FTSE 100 index, and Morrisons (MRW.L) looks likely to find itself in relegation territory.

Morrisons was the fastest growing of the ‘Big Four’ supermarket chains in terms of year-on-year (YoY) grocery sales last year, reporting sales up by 14.3%. Despite this – and increasing its market share to 10.3% as of February 21 – its share price has fallen by more than 11% in the last six months.

This is based upon analysts’ predictions that the spending spree on groceries will begin to wane as the Covid-19 recovery accelerates nationwide.

With its market cap falling to £4.19 billion, the imminent FTSE 100 review comes at a bad time for Morrisons shares, pushing them into mid-cap market territory, and possibly the FTSE 250. Analysts anticipate Morrisons to be replaced in the FTSE 100 by engineers Weir Group (WEIR.L) and Renishaw (RSW.L).

What can we expect from Morrisons’ full-year results this week?

The supermarket chain is set to publish its full year (FY) results for 2020 on 11 March. Morrisons shares are around 6p down on this time last year, which is due to culminate in their relegation in the upcoming FTSE 100 reshuffle.

However, analysts are anticipating full year revenues to rise by 7.9% YoY, recording a pre-tax profit of £200 million. This takes into account its repayment of £274 million in business rates relief and Covid-19-related costs; which were quoted at £280 million in their January trading update.

An interim share dividend of 2.04p a share has already been disclosed by Morrisons’ house broker Shore Capital, along with a special dividend of 4p. Analysts anticipate the final payment being approximately 4.75p a share.

Could Morrisons’ wholesale business offer solace for investors?

According to Investors Chronicle, regulatory disclosures reveal that Morrisons shares are the 13 most shorted share listed on the London Stock Exchange. However, there is cause for optimism for Morrisons investors, given their emergence as a fully digital, omnichannel supermarket chain.

Morrisons’ wholesale arm has developed at pace in recent years. Last month, it extended its partnership with convenience chain McColls. Furthermore, its separate e-commerce partnership with Amazon is proving particularly popular, supplying Amazon’s new London grocery store in Ealing.

According to broker Jeffries, Morrisons’ extended association with McColls, and its thriving arrangement with Amazon, will increase the value of its supply division to over £1 billion in 2021.

Feeling bullish or bearish about the Morrisons share price?

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Footnotes

1 Tax laws are subject to change and depend on individual circumstances. Tax law may differ in a jurisdiction other than the UK.
2 Deal three times or more in the previous month to qualify for our best rate.

This information has been prepared by IG, a trading name of IG Markets Limited. In addition to the disclaimer below, the material on this page does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. IG accepts no responsibility for any use that may be made of these comments and for any consequences that result. No representation or warranty is given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk. Any research provided does not have regard to the specific investment objectives, financial situation and needs of any specific person who may receive it. It has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such is considered to be a marketing communication. Although we are not specifically constrained from dealing ahead of our recommendations we do not seek to take advantage of them before they are provided to our clients. See full non-independent research disclaimer and quarterly summary.

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