Barclays calls 'No Joy' on Morrisons after latest set of interims
Morrison (Wm) Supermarkets
286.40p
16:55 26/10/21
Barclays reiterated its 'underweight' recommendation on Morrisons stock and trimmed its target price for it, pointing out various potentially disappointing signs in its latest set of interims.
Food & Drug Retailers
3,693.03
12:45 19/04/24
FTSE 100
7,840.99
12:45 19/04/24
FTSE 350
4,312.19
12:45 19/04/24
FTSE All-Share
4,268.29
12:45 19/04/24
For starters, guidance for debt to remain "broadly flat" in the backhalf of 2017 appeared to imply "much more limited" free cash flow generation going forward.
Indeed, by the broker's tally even after Thursday's sharp price fall the company's free cash flow yield was below 5% for the next three years collectively, as opposed to 6.5% for its sector peers.
"One could argue that Morrison's solid balance sheet merits a lower yield, but we struggle to argue that the spread should widen any further," Barclays said.
The broker also noted the shortfall in Morrisons LFL sales in retail at up by 2.1%, versus its forecast for a gain of 2.8%, which was also down from the 3.0% rise observed over the first quarter.
"Morrison has tended to over-deliver against sales expectations in the last couple of years, so this modest shortfall is noteworthy," Barclays said.
Food inflation in the UK was also likely close to a peak, it said.
Regarding the McColl's deal, which had now been incorporated into its estimates, Barclays also called 'no joy', telling clients it expected it to be margin dilutive and to have only a limited net impact on absolute operating profits.
Barclays also took aim at the grocer's LTIP rewards target for management, which it judged suggested an undemanding target or an unexciting outlook from here.
The target price was lowered from 220p to 215p.