Stock of the day 08/09/2015 – WM Morrison Supermarkets PLC

Whilst 2015 hasn’t been the out and out disaster 2014 was for Morrisons (yet!), the year hasn’t exactly been great either.

Can the supermarket cause a sustained rally with its half year 2015 results on Thursday?

After hitting a nadir of £1.50 by the end of last October, things where looking up for Morrisons at the start of 2015; the stock opened at £1.83, and ended up hitting £1.99 towards the end of January. Morrisons was helped by a Christmas trading update in the middle of the month; not figures wise, as like-for-like sales fell by 3.1% for the 6 weeks to the 4th January, but because CEO Dalton Philips announced he was stepping down.

However this rally couldn’t last, and the stock tumbled 6%on January 28th as analysts at Bernstein argued that the UK has ‘no more need’ for the supermarket; a harsh statement, but one that investors listened to, causing Morrisons to fall back to £1.73 by February 10th.


(Source: IT-Finance.com 08/09/2015)

Yet, in another damning sign for the exiting CEO, the news that Dalton Philips was to leave the company early put the stock back on track. The positive trading continued throughout February, with Morrisons receiving an extra boost as the appointment of new CEO David Potts, a former Tesco director, was announced at the end of the month, and by March 10th the company had hit a 2015 (and near 10-month) high of £2.14.

Morrisons investors, however, received a sharp shock in the middle of March, as the company announced its worst profit results for 8 years. For the year to February 2015 the supermarket reported a 52% drop in pre-tax profit to £345 million, something that transforms into £792 million pre-tax loss once a £1.3 billion write-down in value is taken into account.

This put Morrisons on a downward trend it hasn’t really been able to escape since. By the start of April the stock had fallen to £1.92, and despite a brief rebound in the middle of that month its losses soon continued, hitting £1.76 on the eve of the UK-election results as the company announced a 2.9% fall in like-for-like sales in its first quarter. Not a great start for new CEO Potts, who pledged to ‘rediscover [the] identity’ of Morrisons.

The Tory win did give Morrisons a mild boost, and across the rest of May and June the company largely remained in a £1.75 t0o £1.80 trading bracket. The Greece-inspired market turmoil at the start of July helped carry the stock lower, touching £1.65 in the process, before it entered August at £1.82. Yet news in the middle of August that Morrisons was to sell its M Local stores failed to inspire confidence in investors, and by the end of the month the stock had hit a 2015 low of £1.60. It is currently trading at £1.70 (IT-Finance.com, 08/09/2015).

In terms of Morrisons’ half year results, analysts are expecting a 2.5% drop in like-for-like sales, leading to a fall in pre-tax profits from £239 million to £140.7 million year-on-year, alongside a slip in revenue from £8.5 billion to £8.1 billion. This has led to Morrisons receiving a consensus rating of ‘Hold’ with an average target price of £1.87.