The FTSE 100 came perilously close to crashing below 5,000 points again Wednesday, and many investors will be seeing red when they look over their share prices. But what’s the best FTSE 100 share to buy right now?
If you’re a Morrisons (LSE: MRW) shareholder, you’ll have seen your shares gain 10% during the day, after the supermarket chain released a solid set of full-year results.
If anything, the coronavirus pandemic is providing a boost to supermarkets that deliver, as more and more people isolate themselves at home and avoid going to the shops in person. Take that, Lidl and Aldi.
Crisis, what crisis?
As an immediate reaction to the crisis, Morrisons has expanded its online delivery capability, and has guaranteed pay for employees. And to help ease the financial burden on others, the company has switched to making immediate payments to small suppliers.
The cash is there for Morrisons to do these things, with free cash flow for the year coming in at £238m. That’s down a bit from £281m in the previous year, but excluding “£57m other non-cash movements” boosts it to £295m.
Total revenue did fall slightly, by 1.1%, but pre-tax profit before exceptionals gained 3%, while EPS before exceptionals rose 2.6%. And in these days when some companies are struggling with pension deficits, Morrisons recorded a surplus of £944m.
Morrisons’ tie-up with Amazon has strengthened further too, with the “Morrisons store on Amazon Prime Now extended to eight cities across the UK.” That’s the power of home delivery, and it could be a telling differentiation factor.
Any debt issues?
I’ve recently cautioned against investing in companies saddled with high debt. Net debt at 2 February stood at £2.458bn, up slightly from £2.394bn a year previously. For a company with annual revenue of £17.5bn, I don’t see that as any great problem at all. Morrisons also exceeded its £1.1bn disposal proceeds target during the year, so I’m really not troubled.
The company paid a total ordinary dividend of 6.77p per share, with a special taking that up to 8.77p. What yield does that provide in these days of tumbling share prices? Oh, hang on, the Morrisons share price hasn’t fallen.
The coronavirus crash kicked off around 19 to 20 February, and since then the FTSE 100 has lost 30% of its value. But over the same period, Morrisons shares are up 9%. So no crisis-boosted dividend then, but we’re still looking at total yield of 4.4% (and an ordinary yield of 3.4%) which is really quite decent.
Best FTSE 100 shares?
Interestingly, shares in rival Tesco have actually fallen during the pandemic pandemonium, but the fall is only a relatively modest 8.3%. And in the past few days it’s been picking up again.
J Sainsbury shares have spiked in the past couple of days, and we’re looking at a 5% gain since the crisis started, so there’s some relief for shareholders from the carnage here too.
I’ve never been a great fan of supermarket shares, largely because I see them as a bit plodding in a very competitive market. And over the long term, I just see so many more attractive options. But there’s little doubt that supermarket shares are proving nicely defensive in the current downturn.
