Should I Invest In Wm Morrison Supermarkets Plc Now?

Can Wm Morrison Supermarkets plc (LON: MRW) still deliver a decent investment return?

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

morrisonsLast month’s first-quarter update from Wm Morrison Supermarkets (LSE: MRW) (NASDAQOTH: MRWSY.US ) reveals like-for-like sales down 7.1% excluding fuel.

That’s a poor result, but it’s unsurprising given that the firm predicts full-year underlying profit to come in between £325m and £375m — even on the most optimistic figure that’s around 52% down on the £785m achieved last year.

I think it’s reasonable to describe such an outcome as a profit collapse without being melodramatic.

Structural shift

Of course, the company is fighting back. Plans to drive £1 billion in cost savings over three years will help. Improving the layout of big stores might help. Opening 200 convenience stores by the end of the year should also provide a boost, as will driving up on-line sales.

However, whilst plans to slash the prices of 1,200 products, permanently, might help with customer retention, it’s difficult to see such moves helping to restore profitability. It’s starting to look like a mass-consumer movement to “alternative value suppliers” is wresting some of the big supermarkets’ traditional power away — permanent price slashing looks like something of a desperate measure.

It’s hard to disagree with Morrison’s chairman who says he thinks the customer shift to value is structural this time rather than cyclical.

Turnaround no more

Three months ago, I wondered whether Morrison had an element of turnaround potential at the current 193p share price. Today, I don’t think it has. We should think of forward profit forecasts as a downwards rebasing to a new normal. Sure, Morrison will maybe make progress from this new, lower level, but it will likely be on-trend and mild growth at best. There’s no frisky upwards re-rating on the horizon here. If anything, with the potential for the current customer backlash to protract into a new not-taking-any-more-nonsense zeitgeist, there’s now increased downside risk to holding Morrison shares.

With so many other better businesses on the London market, with better growth prospects and better dividend prospects, why should I risk my hard-earned capital on Morrison?

What now?

City analysts expect a 15% recovery in earnings per share in 2016 after 2015’s profit collapse. The forward P/E rating is running at about 13 and the forward dividend yield at around 6.2%. Forward profit predictions assume the dividend will be covered 1.25 times. To me, that’s a high rating for a company that has just revealed its poor growth credentials and a vulnerable-looking dividend.

Morrison’s dividend might look attractive to some, but I prefer better prospects on total returns rather than just an income from my investments.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Kevin does not own shares in Wm Morrison Supermarkets.

More on Investing Articles

Investing Articles

1 of the best UK shares to consider buying in April

Higher gold prices and a falling share price have put this FTSE 250 stock on Stephen Wright's list of UK…

Read more »

Person holding magnifying glass over important document, reading the small print
Investing Articles

The market is wrong about this FTSE 250 stock. I’m buying it in April

Stephen Wright thinks investors should look past a 49% decline in earnings per share and consider investing in a FTSE…

Read more »

Black father and two young daughters dancing at home
Investing Articles

1 FTSE 250 stock I own, and 1 I’d love to buy

Our writer explains why she’s eyeing up this FTSE 250 growth phenomenon, and may buy more shares in this property…

Read more »

View of Tower Bridge in Autumn
Investing Articles

The FTSE 100 is closing in on 8,000 points! Here’s what I’m buying before it’s too late!

As the FTSE 100 keeps gaining momentum, this Fool is on the lookout for bargains. Here's one stock he'd willingly…

Read more »

Investing Articles

3 ideas to help investors aim for a million-pound Stocks & Shares ISA

The UK has a growing number of Stocks and Shares ISA millionaires, and this plan may be one of the…

Read more »

Illustration of flames over a black background
Investing Articles

2 red-hot UK growth stocks to consider buying in April

These two growth stocks are performing well, but can they continue to deliver for investors through 2024 and beyond?

Read more »

Charticle

Is JD Sports Fashion one of the FTSE 100’s best value stocks? Here’s what the charts say!

The JD Sports Fashion share price remains a wild ride during the first quarter. Could it be one of the…

Read more »

Investing Articles

Could the JD Sports Fashion share price double in the next five years?

The JD Sports Fashion share price has nearly halved in the past five years. Our writer thinks a proven business…

Read more »