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Here’s why the Morrisons share price could surge higher than the FTSE 100

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The prospects for the UK economy may appear to be relatively downbeat at the present time. Brexit risks remain high, while consumer confidence is at a relatively low level. However, a number of shares, including Morrisons (LSE: MRW), appear to be in the midst of delivering improving financial performance.

Looking ahead, the strategy that has been put in place by the business could lead to a rising share price that allows it to outperform the FTSE 100. However, it’s not the only UK-focused stock which could be worth buying at the present time. Reporting on Tuesday was a company that may offer a wide margin of safety and upside potential.

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Robust performance

The company in question is automotive retail group Marshall Motor Holdings (LSE: MMH). It released a robust rest of interim results on Tuesday which showed that it is performing well despite industry headwinds. Revenue in the first half of the year was down by 0.4% to £1,162.9m, while reported profit before tax increased by 6.5% to £17.2m. Like-for-like (LFL) new unit sales to retail customers fell by 5.9%, although LFL used revenues were up by 5.2%.

In response to a tough retail environment, the company was able to reduce net operating expenses versus the comparable period. This was driven by strong management actions on discretionary costs and site closures. Further cost reductions could help the company to offset what may prove to be a challenging period in the second half of the year.

With Marshall Motor Holdings trading on a price-to-earnings (P/E) ratio of around 7.5, it appears as though investors are expecting further difficulties over the medium term. But with its bottom line due to return to growth of 2% next year, it could be a stronger performer than the market is anticipating. As such, now could be the right time to buy it.

Changing strategy

The prospects for Morrisons may also be better than investors are expecting. Certainly, the supermarket sector continues to be crowded and highly competitive. No-frills operators such as Lidl and Aldi have caused mid-tier operators’ sales to come under pressure. This trend, though, may now have eased somewhat, with Morrisons delivering improving financial performance in recent quarters.

The strategy change employed by current management could lead to further growth over the medium term. Accessing convenience store growth through the resurrection of its Safeway brand and a deal to supply a range of stores could lead to high growth with minimal outlay. And with an increasing online presence, the company’s prospects appear to be improving at the same time as its net debt is falling.

With Morrisons due to post a rise in earnings of 9% this year and 8% next year, its prospects could be stronger than many of its FTSE 100 peers. And with Brexit causing confidence towards UK-focused shares to decline, now could be the right time to buy the retail stock.

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Peter Stephens owns shares of Morrisons. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

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