Earnings

Morrisons’ share price: What to expect in half-year earnings

Morrisons’ [MRW] share price, like its peers, suffered as the coronavirus pandemic took hold, dropping 15% from its early March price of 185.30p to 157.55p in mid-March – a level not seen since January 2016. The decline didn’t last long, though, and the shares have climbed back to within touching distance of the 200p level, closing at 193.3p on 8 September.

Providing confidence in Morrisons’ share price were exceptional trading levels at the height of the pandemic and inroads into online shopping. Will upcoming half-year results prompt a slowdown in Morrisons’ share price gains as lockdown eases, or will the supermarket continue to grow its market share?

 

 

When are Morrisons’ upcoming results published?

10 September

 

What could move Morrisons’ share price in the results?

How Morrisons fared in the pandemic

Morrisons’ share price and trading activity jumped at the peak of the pandemic. May’s Q1 figures showed that like-for-like sales (excluding fuel) rose 5.7% in the 14 weeks to mid-May, increasing at a faster rate of 10.8% in the last couple of those weeks. Morrisons recruited 25,000 employees to cope with the surge in demand.

As well as adding a click-and-collect service from almost 280 stores, Morrisons teamed up with food delivery service Deliveroo, enabling core items to be delivered from 130 shops in 30 minutes.

25,000

Number of employees recruited to cope with demand

 

With the UK settling in to a ‘new normal’, investors will be keen to see just how much trading activity has changed since mid-May.

 

Morrisons aims to capitalise with digital focus

A big step in cementing Morrisons’ online credentials is a recently announced partnership with Amazon [AMZN]. Morrisons revealed last month that Amazon Prime members, starting with a trial period in Leeds, can now choose from Morrisons’ complete product range for the first time, coupled with same-day delivery by Amazon.

"It will give more and more customers the option of receiving Morrisons’ groceries straight to their doorstep, including freshly prepared products," according to Morrisons CEO David Potts.

Analysts at Shore Capital reflected on the move positively: "For Morrisons, we see this development as a complementary move that deepens its online penetration of the UK online grocery market in a capital-light manner. In particular, it potentially expands the reach of the brand to households where there have not been traditional Morrisons’ shoppers, most notably maybe in relatively under-represented postcodes”.

“For Morrisons, we see this development as a complementary move that deepens its online penetration of the UK online grocery market in a capital-light manner” - Shore Capital analysts

 

Given that Morrisons’ share price rose 1.5% following the announcement, any further insight into how the supermarket is adapting for online will be closely scrutinised.

 

Growing market share

Kantar’s July report on the supermarket sector showed that UK grocery sales leapt by 16.9% in the 12 weeks until 12 July. Of the ‘big four’ supermarkets – Tesco, Sainsbury’s, Morrisons and Asda – Morrisons outperformed the rest, as sales jumped by 17.4%. In contrast, Asda’s sales increased 11%, the slowest rate of the big brands. Notably, online grocer Ocado saw its sales increase over 45% in the same period.

17.4%

Morrison's rise of sales in 12 weeks until 12 July

 

Morrisons’ performance paints a positive picture compared with last year when, according to Kantar, Morrisons lost 2.7% of its market share in the three months to mid-August 2019. In fact, the group was the worst performer of the big four, as deep discounters Lidl and Aldi continued to make inroads. Ocado also performed well, reflecting changing consumer habits and the growth in online shopping.

 

What are the analysts saying?

According to the Financial Times, the 14 analysts offering 12-month targets for Morrisons’ share price have an average target of 207p, with a high estimate of 255p and a low estimate of 176p. Hitting the average estimate would represent a 7.1% gain on the current share price through 8 September’s close

Further underlining Morrisons’ share price’s potential for a modest rise, Morningstar’s quantitative equity research report has a 4-star ‘Undervalued’ rating on the stock revealing that, with a fair value estimate of 221p, it believes Morrisons’ share price is undervalued by 14%.

Based on the relative strength index, Morrisons’ share price is 5.93% higher over the past three months and has outperformed the wider UK market, according to Stockopedia. This recent positive price momentum is viewed as a leading indicator of continued strength.

The supermarket group has certainly been proactive over the last year or so, tying up various deals to boost its online presence – and this innovative way of thinking could bode well for Morrisons’ share price and the supermarket’s ongoing fight for increased market share.

 

Market Cap£4.72bn
PE ratio (TTM)13.60
EPS (TTM)14.40
Quarterly Revenue Growth (YoY)-2.6%

Morrisons share price vitals, Yahoo Finance, 9 September 2020

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