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Wm. Morrison Supermarkets plc Could Be Worth 325p

Morrisons (LSE: MRW) (NASDAQOTH: MRWSY.US) is a company that has struggled to keep up with some of its peers in recent years.

Indeed, while the likes of J Sainsbury have posted consistently positive like for like sales growth figures and have been able to expand market share during a highly challenging period for the sector, Morrisons has fallen behind on both counts.

However, with 2014 set to witness the rollout of the online offering of Morrisons and the continued expansion into convenience stores, it could be a turnaround play for next year.

Of course, Morrisons is cheap — and I’m not just talking about its food offering. It currently has the lowest price-to-book ratio in the food retail sector, with its shares trading on a multiple of just 1.2x net assets.

This means that investors are paying for the net assets of Morrisons plus goodwill of just 20%. This compares to a sector average of 1.7x and highlights the excellent value for money that shares in Morrisons currently offer.

Indeed, Morrisons may be experiencing a tough time at the moment but it seems likely that its net assets are worthy of a larger amount of goodwill, since the company remains very profitable. Were shares to trade on a price-to-book ratio in-between the current ratio and the sector average, it would mean Morrisons would have a ratio of 1.45x and shares would be priced at around 325p.

This price level is 23% higher than the current share price and highlights the potential capital gains that could be achieved over the medium to long term, just by the discount to the sector price to book ratio being narrowed.

In addition, Morrisons continues to be one of the most attractive defensive stocks around. As well as selling a staple good that will always be demanded, even during recessions and depressions, the company currently has a beta of just 0.65.

This means that for every 10% fall in the FTSE 100, Morrisons should (in theory) fall by 6.5%, meaning it could offer significant downside protection versus other stocks were markets to fall. Of course, the same performance difference should, in theory, occur on gains too, with Morrisons gaining 6.5% for every 10% in the wider index.

So, a great value share price and defensive properties could make Morrisons worthy of consideration for inclusion in your portfolio.

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> Peter owns shares in Morrisons.