Shore Capital analysts Clive Black and Darren Shirley said: “Morrisons is in much better shape than it has been for some considerable time.
“We believe that ceo David Potts, and his team deserve considerable praise for the stabilisation of the business, and now entry into what we believe is a period of growth-on-growth.”
Morrisons’ wholesale operations – including its deal with Amazon for the Fresh delivery service – added incremental volume, and therefore capacity, at its manufacturing activities, Shore Capital said. The manufacturing operations provided Morrisons with a “beneficial leverage effect”.
‘Rebuild its profit base’
The UK’s second largest fresh food manufacturer has a “sound basis to continue to rebuild its profit base”, the analysts said. But, there was still more work to be done, they added.
“There remains a lot of fixing still to do with many stores to be refreshed, with the range reviews and improvements an ongoing process,” said Black and Shirley.
“Broadening the business towards the £50M–£100M of guided incremental profits feels to us that it is early doors [in terms of improving the business].”
Shore Capital forecasted a 1.75% to 2% rise in like-for-like in-store sales. If accurate, that would mark a sixth consecutive quarter of rising like-for-like sales. The analysts also forecasted a 0.3% rise in ‘other’ like-for-like sales, including revenue from Amazon Fresh.
‘Continues its self-help programme’
“We also believe that Morrisons’ mix will remain sound as the market remains competitive, but resilient, whilst the company continues its self-help programme,” said Shore Capital.
“[That included] increasing the build-up of The Best premium [own-label] sub-brand; focusing upon health and wellbeing through a growing Free-From range, now embracing [own-label], and the recently launched Eat Smart offer; and seeing through its rolling category review programme.”
Based on the analysts’ forecast, it would be surprised to change its full-year profit and earnings projections, they said.
Meanwhile, last month Morrisons reported an 11.6% rise in underlying profit to £337M in its full-year financial statement. Shore Capital said the trading update would have made the late Sir Ken Morrison “very happy to observe”.
- 1.75% to 2% rise in like-for-like sales
- 0.3% rise in ‘other’ sales, including Amazon Fresh
- Retailer in “much better shape” than last year