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Spread bets and CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 66% of retail investor accounts lose money when trading spread bets and CFDs with this provider. You should consider whether you understand how spread bets and CFDs work, and whether you can afford to take the high risk of losing your money.

Morrisons shares boosted by encouraging Q1 2021 trading update

FTSE 250 supermarket chain Morrisons released its Q1 2021 trading update on 11 May, revealing a 5.3% rise in total sales. With the firm on track for future profit growth and low debt, what’s the likely impact on Morrisons shares?

  • Like-for-like sales up 4.7% (inc. fuel)
  • Online sales rise by 113%
  • Year-end EBITDA to be in line with 2019/20 levels
  • Ready to trade the Morrisons share price? Open an account today

The Morrisons share price rose by 2.11% to the price of 186.20p in early morning trading on Wednesday 12 May, following the publication of the company’s Q1 2021 trading update. The UK’s fourth-biggest supermarket chain has reported an encouraging start to its 2021/22 trading year, with group like-for-like (LFL) sales up 2.7% excluding fuel since being demoted from the FTSE 100 index.

How has Morrisons posted such encouraging first-quarter online and wholesale gains?

The backbone of Morrisons’ impressive Q1 trading figures has been its fast-growing online shopping arm. The firm points to a ‘renaissance’ in the British supermarket industry since the Covid-19 pandemic, due in no small part to the demand from online grocery orders.

The firm said that customers have ‘embraced shopping online’ with ‘Morrisons.com and Morrisons on Amazon now complementing [its] supermarkets well’.

Year-on-year (YoY) growth of 113% in online sales has also been augmented by sustained growth in its wholesale arm, which is also up 21% YoY. Morrisons’ partnership with McColls appears to be bearing fruit, with approximately 230 new McColls stores now stocking Morrisons food and beverages nationwide. In addition, 56 McColls stores have since been converted into ‘Morrisons Daily’ outlets.

What is the outlook for the remainder of 2021/22?

In early trading on 12 May, Morrisons shares have inched closer towards year-to-date highs of 187.00p achieved on 25 January. A key factor in this rise is due to the chain’s lowering Covid-19-related operating costs, which totalled just £27m in Q1 2021. The firm’s trading update describes cash flow as ‘strong’ and is confident that ‘debt will fall’.

Its guidance for the remainder of this trading year suggests that year-end EBITDA will be no greater than its 2019/20 level of 2.4x. Furthermore, it maintains that 2021/22 pre-tax profits would have exceeded its £431m profits in 2020/21 had it not been for the £230m waived in business rates relief.

Will German discount chains Aldi and Lidl prove Morrisons’ biggest competition?

Discount supermarket groups Aldi and Lidl are sure to be the closest threat to Morrisons’ growth in the coming months. Morrisons’ relationships with Amazon and Ocado are already bearing fruit but need to drive sustained growth to encourage consumers to opt for convenience over cost.

Tesco launched an ‘Aldi Price Match’ in 2020 to try and close off the challenger supermarket and Morrisons may have to look at implementing something similar to prevent shoppers from taking the low-cost route when the economy is back at full throttle.

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