With the deal between Marks & Spencers and Ocado dominating headlines in recent weeks, it’s easy to forget that it’s been business as usual for more ‘traditional’ grocery retailers such as WM Morrisons (LSE: MRW). Today’s results for the 12 months to 3 February certainly gave investors in the £5.3bn-cap much to think about.
“Well on track”
Total revenue rose 2.7% to £17.7bn with like-for-like sales rising 4.8% compared to 2.8% in the previous year, thanks to contributions from its wholesale division’s partnerships with Amazon and McColl’s.
Pre-tax profit rose 8.6% to £406m, although one-off costs relating to items such as property disposals brought the latter down to £320m.
Having been brought in to steady the company back in 2015, CEO David Potts is understandably pretty happy with how things are going, stating that Morrison’s “third consecutive year of strong sales and profit growth” was further evidence that “the Morrisons turnaround is well on track.”
Despite the ongoing debacle that is Brexit continuing to make consumers cautious over what and how much they buy, the company also said it still had “many sales and profit growth opportunities ahead.”
Indeed, so confident is the business in its future, it announced another special dividend of 4p per share. This brings the total dividend for the year to 12.60p — a little under 25% higher than last year and giving a trailing yield of 5.6%.
All priced in?
After initially rising as the market opened, Morrisons’ shares were trading flat at lunchtime, suggesting that investors were satisfied, although perhaps not necessarily overwhelmed, by today’s figures. Events at Westminster may also be playing a role.
Nevertheless, today’s reaction somewhat mirrors my rather apathetic attitude towards the stock as things stand. While news of a special dividend should be welcomed, it’s worth remembering that dividend investors haven’t had the easiest ride from supermarkets over the last few years, Morrisons included (it last cut its payout in 2016). If you’re looking for more reliable income, I think there are better options in the FTSE 100.
In addition to the above, I’m struggling to see the attraction of owning a slice of a supermarket that trades on 16 times forecast earnings for 2019/20. Granted, that’s not ludicrously expensive compared to some high growth stocks, but it does feel a bit dear for a company that fails to really stand out in the grocery sector. The aforementioned wholesale supply deals are clearly working well — £700m of sales this year, with £1bn targeted going forward — but current market share data suggests this is a company forever running to stand still.
Regardless of how well managed it is, data from Kantar Worldpanel shows Morrisons is still very much in fourth place in terms of popularity, behind Asda, Sainsbury’s and market-leader Tesco. With no sign of momentum slowing at discounters at Aldi (only 3% behind Morrisons), I’d be more concerned about the company protecting its fourth spot rather than taking the fight to its larger rivals.
So, while I wouldn’t necessarily be running for the exits, today’s lukewarm reaction from market participants leaves me asking what the company must do to lift the share price back to the 300p mark, last breached at the end of 2011. I don’t have an answer to that and that’s sufficient for me to refrain from getting involved.
