With all of the focus on Tesco, grocery rival Morrisons (LSE: MRW) seems to have gone ‘off the radar’ in recent weeks. However, shares in the northern-focused supermarket chain have continued their slide and are now down a whopping 34% during the course of 2014, which is a disastrous return given that the FTSE 100 is up 1% over the same time period.
However, the company has potential and could prove to be a turnaround play over the coming years. Here’s why.
A New Strategy
Although Morrisons has been slow to arrive at the online and convenience store ‘parties’, it is arriving at last. Indeed, the company has rolled out its online offering in 2014 and expects to be able to deliver to around half of the population by the end of the year. In addition, its convenience store proposition is increasing from a base of literally a handful of stores to number several hundred over the next year or so.
The impact of this period of intense growth on sales is, of course, unknown. However, a key reason why Morrisons has slipped behind peers in terms of like-for-like sales numbers is its lack of presence in those two areas, which have proven to be hugely popular in recent years. So, in theory at least, an exposure to those areas should have a positive impact on the company’s top line and, in time, on the bottom line, too.
A Return To Normality?
With the UK economy continuing to pick up its pace of growth, it is likely that we will see a return to normality in terms of shoppers’ spending habits. Understandably, during the credit crunch many shoppers became obsessed with pricing and looked for little else beyond how much products cost. However, with disposable incomes set to rise, we could see a renewed focus on the quality of food, its freshness, customer service and convenience — all of which are areas that Morrisons has traditionally been strong on. Therefore, continued improvements in the UK economy could help Morrisons to re-engage with its core customers.
Looking Ahead
Clearly, the supermarket sector is going through an incredibly tough time. Despite this, Morrisons is forecast to make a profit in the current year. Furthermore, its bottom line is expected to grow by as much as 16% next year, which shows that the company could begin to turn things around even in the short run. Trading on a price to earnings (P/E) ratio of 13.8 and yielding 6.8%, Morrisons could prove to be a strong, albeit long term, investment that could make a positive impact on your mortgage repayments.
