The prospects for Morrisons (LSE: MRW) seem to have improved significantly in recent years. Under its present management team, the company has been able to put in place a revised strategy that has led to improving financial performance, a special dividend and reduced risk.
Looking ahead, further challenges could be ahead for the UK retail sector. But with the stock having what appears to be a sound growth outlook, it could be worth a closer look alongside a smaller stock that reported positive news on Monday.
Growth potential
The company in question is radiation detection technology firm Kromek (LSE: KMK). It announced news of a new long-term supply contract worth a minimum of $7.8m for an existing customer within the baggage security screening market. The contract covers a five-year period and starts immediately.
Today’s news follows other multi-year contracts as customers continue to embrace new technology, with the company appearing to be well-placed to capitalise on growing demand at a time when security is becoming an increasingly important factor for a range of organisations. The company’s ability to deliver customer-specific detector modules and deploy them in advanced screening systems for real-world use could mean that demand for its products remains high.
Although Kromek is expected to remain loss-making in the next two financial years, the long-term prospects for the business could be relatively bright. While potentially risky, it could deliver high rewards over the long run. As such, it may be worthy of consideration for less risk-averse investors.
Improving prospects
As mentioned, Morrisons has undergone a transformation in recent years. The company has been able to increase its exposure to the wholesale industry, with it seeking to build on its status as a major food producer and distributor. This has helped the business to gain additional exposure to faster-growing areas such as convenience and online opportunities, where previously it had arguably been behind some of its industry peers.
As well as this, the company has expanded areas such as its loyalty programme, while also increasing staff pay as it seeks to deliver an improved customer experience. With a special dividend having been paid in the last two financial years, the company’s management appears to have confidence in its future growth outlook.
Although the prospects for the UK food retail industry remain somewhat challenging, the outlook for Morrisons could be relatively positive. The company is forecast to post a rise in earnings of 8% in the current year, followed by further growth of 10% next year. As such, it seems to have a bright future ahead of it, with its revised strategy appearing to offer a strong catalyst for its financial performance.
While there could be further uncertainty ahead for a variety of retail shares in the UK, the company appears to have found the right plan through which to outperform the FTSE 100 in the long run, in my opinion.
