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Earnings

Morrisons share price unmoved by profits drop

Morrisons share price: Morrisons storefront signage and logo

The Morrisons share price is unlikely to see much in the way of movement, despite a sharp fall in profits in the first half of this year, as the company dealt with rising covid costs, as well as takeover interest from several third parties. 

M&A talk drove Morrisons share price to new highs 

With all the M&A chatter surrounding the business, and the various bids that have driven the Morrisons share price to its current record high levels, today’s first-half trading update gives us the opportunity to look under the bonnet to find out what all the fuss is about, now that the bid appears to be going to auction.

While most of the talk has been of the value of its assets and low debt levels, there is also a decent business underneath, albeit in a very competitive market, with the UK’s fourth-largest supermarket squeezed between the likes of Tesco and Sainsbury, and the young upstarts of Aldi and Lidl.

The bigger question is whether the business in question is worth what the two bidders are looking to pay, or whether today’s numbers prompt a reassessment on the part of one or other of the interested parties.

In May, the company saw Q1 total sales rise by 4.7%, with online sales showing an increase of 113%, while fuel sales were back to levels last seen pre-pandemic.

Q2 was never likely to be anywhere near as good, with the August Kantar survey for the 12 weeks to 8 August showing a sharp decline in like-for-like sales of 6.2% on 2020 levels, due to much tougher comparatives. Despite this, Morrisons' share price remained unchanged. 

Today’s Q2 numbers confirmed this slowdown with comparable sales excluding fuel down 3.7%, compared to a rise of 12.3% last year, equating to a 0.3% half-year fall on last year's elevated levels of 8.7%.

Putting that to one side, like-for-like sales ex-fuel over a two-year period, pre-pandemic were still higher by 8.4%.

As far as online sales are concerned, the picture was even more positive, higher by 237.1% compared to 2019, and up by 48% to a year ago.

Amazon deal making a positive contribution

The deal with Amazon is also paying dividends, now expanded to over 60 towns and cities, while also supplying Amazon Fresh stores. The deal with Deliveroo has also seen home deliveries rise from 183 to 328.

While sales were down, revenues were up, rising 3.7% to £9.05bn. However, profits were down by 37.1% to £105m, with Covid costs of £41m weighing on the headline number, as well as lost profits from the closure of instore cafes of around £80m. However, the Morrisons share price continued to resist any negative implications 

On the outlook, management expressed confidence that second half profits would be considerably higher than the £105m in the first half, although upward pressure on prices is expected during the second half, due to shortages of HGV drivers, as well as higher supply chain costs.

There was no interim dividend announced, given the takeover speculation and the potential of an auction process, which will likely be decided by 18 October, with the CD&R bid the currently favoured option. 


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