At Morrisons, it’s sometimes hard to decide whether the shopping basket is half-full or half-empty. Yesterday’s Christmas trading statement doesn’t make it any easier, especially as it is the first of the big grocers to report.
True, like-for-like sales growth in the stores in the nine weeks to January 6 was in positive territory and just about beat expectations. The shopper slumber depressing the whole sector in November seems to have ended with a last-minute rush in late December. The foray into wholesale also seems to be going well, with sales up by 3 per cent, thanks to big-name signings like Amazon as well as other customers such as the McColl’s convenience store group.
But looked at from another angle, the numbers weren’t exciting. Underlying sales growth has slowed in each of the past three reporting periods and it will be years before the wholesale operation is big enough to move the dial seriously.
The company resorted yesterday to boasting about cuddly, hard-to-measure improvements instead, pointing to rises in “colleague friendliness” and “checkout experience” — important, undoubtedly, but unlikely to impress analysts with spreadsheets to fill in. It was able to confirm unchanged full-year profit expectations, but at the end of the day the market concluded “half-empty” and marked the shares down more than 3 per cent, or 7p, to 212½p.
Comparative sales figures yesterday from Kantar were another reason for caution. The discounters Aldi and Lidl, as usual, grabbed market share from the legacy incumbents, but among the Big Four Morrisons trailed in third place behind Asda and Tesco.
It is now almost four years since David Potts took over as chief executive from Dalton Philips. Mr Philips was accused of cutting too deep into staff numbers and of failing to compete with the discounters, leading to sharp sales declines.
Mr Potts has stopped the rot by going back to basics, trying to address the myriad little details that can nark shoppers and send them elsewhere. Vegans are now catered for, cucumbers come unencumbered with polythene. More widely, ranges have been improved, saveable shops spruced up and others jettisoned.
The proposed merger of Asda with Sainsbury’s, if it goes ahead, is a big unknown. Yes, it would loosen some sites that look perfect for Morrisons to snap up, but ultimately it would create a dangerously large arch-rival.
Competition experts are divided on whether it would shorten or lengthen the odds on a takeover bid for Morrisons. Reducing the Big Four to a Big Three is already a step too far, according to some, but a bid from, say, Amazon, dismissed as pie in the sky in the past, might be countenanced as an bold counterweight to a putative Sasda.
Food retailing is not the most exposed of sectors to a disorderly Brexit. Disruption at the ports would have an impact on imported food, but in the event of a slowdown or recession, the grocery sector is seen as a relative refuge. Morrisons is making slow stock market progress. Consensus profit expectations for the full year have crept up from £398 million to £409 million. That would equate to earnings per share of 13p for the current year, rising to perhaps 14p in 2019-20, placing Morrisons on a forward multiple of 16 times and then 15 times. Not especially cheap for a relatively low-growth grocer.
The yield, though, is more enticing. Morrisons has been paying special dividends and, with the balance sheet healthy and pension fund repaired, these could carry on in future years. Including specials, the shares yield close to 6 per cent.
ADVICE Hold
WHY Competition remains fierce, but the yield offers some compensation
ABCAM
With Alan Hirzel, Abcam’s chief executive, presenting today at the JP Morgan healthcare conference in San Francisco — a must-watch annual event in the industry calendar — yesterday’s trading update from the London-listed biotech was always likely to be a case of “steady as she goes” (Alex Ralph writes).
As it turns out, steady was just what the doctor ordered. With an eye to March and the announcement of first-half results for the six months to the end of December, Abcam said that it was on course to hit its full-year targets. The reassuring update, albeit against lowered expectations issued last September alongside its full-year results, pushed shares in Abcam up 55p, or 4.8 per cent, to £12.03.
Valued at about £2.5 billion on the Aim, London’s junior market, Abcam is one of Britain’s leading biotechnology groups. Founded in 1998 by Jonathan Milner, a University of Cambridge scientist, it has expanded from supplying “a handful of antibodies in an ice-bucket” to local researchers to shipping orders to more than 130 countries from a catalogue of more than 100,000 products. It supplies two thirds of the world’s scientific researchers, covering areas such as cancer, stem cells and the cardiovascular system.
It was expenditure on areas such as research and development, data analytics and the Chinese market that prompted Abcam to issue disappointing full-year forecasts in September for its current financial year. That outlook, after a strong stock market run, has caused the shares to re-rate from September’s peak of £15.39 to trade on a forward enterprise value-to-ebitda ratio of about 22 times, compared with about 30 times in the autumn.
Total revenue for the first half of its financial year is forecast to have increased by about 10 per cent on a constant currency basis, a slowdown on the 11.2 per cent on the same period a year earlier, and its gross margins are expected to be “modestly ahead” of last year.
The first-half performance suggests that revenue growth again will be weighted towards the second half if Abcam is to hit its full-year target of 11 per cent growth.
ADVICE Buy
WHY Re-rating presents buying opportunity in a specialist company
