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A Change Of Strategy Makes Me Want To Buy Wm. Morrison Supermarkets plc

Morrisons (LSE: MRW) (NASDAQOTH: MRWSY.US) is a supermarket that I’m a big fan of.

Not only do I like to shop there because it offers, in my view, excellent value for money, I also like to invest in it because I think it has lots of growth potential.

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Indeed, another aspect of this growth potential could be viewed in its recent results, with the company seeming to be following a path that Tesco has already travelled down.

The piece of information is the sale and leaseback of Morrisons stores. This has been done extensively by Tesco in recent years and, interestingly, goes against the principles of Morrisons’ founder, Sir Ken Morrison.

He believed that the company should aim to own all of its stores and that leasing was a far more costly option in the long run.

However, I think that sale and leaseback is a great idea for two main reasons:

Firstly, Morrisons is sitting on a fairly hefty property portfolio that has seen its value rise well above book value in recent years. There seems to be little point to me in trying to speculate further on property price rises, so taking profit on at least some of the property seems to me to be a very sensible idea.

Secondly, it frees up capital that was previously tied up in bricks and mortar. This can be used to develop the rest of the business, with it providing a welcome boost at a time when Morrisons is struggling to increase sales.

Indeed, with the company expanding into convenience stores in a big way this year, extra cash could come in handy so as to increase the rollout of the estate, as well as the online offering that it set to launch in 2014. Furthermore, a share buyback or special dividend could also be a possible use of the cash, should Morrisons decide that it does not require additional investment in the business.

So, I think that the sale and leaseback of some stores is great news for Morrisons because it books a profit on sale and allows the capital to be used more effectively elsewhere in the business. Such cash reinvestment could act as a stimulus to increase sales and profit growth for the company in future years.

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> Peter owns shares in Morrisons. The Motley Fool owns shares in Tesco and has recommended shares in Morrisons.

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