We’ve written on a positive trading statement from J Sainsbury (SBRY) but it is not the only one in its sector that, despite recent gains, looks to offer long-term income value. Wm Morrison Supermarkets (MRW) is also well-known as one of Britain’s major food retailers. Its latest annual report noted 492 supermarkets and Wholesale development, particularly with McColl’s and Amazon.
CEO David Potts joined Tesco at age 16, working there for 39 years including becoming CEO of its UK retail stores business. He joined Morrisons as CEO in 2015 and his salary last year was £0.85 million with also a £0.83 million bonus (more with LTIP’s) and 2,322,134 shares owned. CFO Michael Gleeson is a member of the Institute of Chartered Accountants in Ireland and also previously worked for Tesco in a number of senior finance roles. He joined Morrisons in 2014 and the board last year. Chair Andrew Higginson has significant board, commercial, retail and leadership experience, including as a former director of Tesco. He became Chair in 2015 and his remuneration last year totalled £0.504 million, with 63,560 shares owned.
A latest trading update included that for the first 22 weeks (to 3rd January 2021) of the company’s second half like-for-like sales were +1.9%, with that +8.1% excluding fuel. It emphasised a particularly strong Christmas and New Year period – which helped the most recent 9 weeks to +8.5% ex-fuel, though +1.5% including fuel, with year-on-year online sales more than tripling so far in Q4. It added it expects pre-IFRS 16 year-end net debt to be around £1.7 billion, though this “temporarily adversely affected” by lower fuel demand (currently c.£220 million), COVID-19 and Brexit stock investment (c.£65m) and paying smaller suppliers immediately (c.£60m). Clearly the noted “extremely unpredictable current circumstances” bring risks for industry participants and there is also the noted debt. However, the paying smaller suppliers immediately scheme and a 4p per share catch-up dividend to soon be paid (to those on the shareholder register as at close of 18th December 2020) emphasises the company’s confidence in its cash flows.
The latest trading update emphasised that “we still expect 2020/21 profit before tax and exceptionals to be in line with our expectations, in the range £420m - £440m”. That is before to £230 million of business rates relief the company is to waive despite expected “direct” COVID-19 costs of c. £280 million for the year as well as the extra costs of doing business – of course, not really directly due to COVID-19, but thanks to the government’s ill thought out response to it. The company noted a further sales increase at the start of the second England lockdown and there is confidence looking ahead with it noting it is already profitable online and expects to become more so as its continues to develop, including 'Morrisons on Amazon', and wholesale stepping up further as remaining McColl's stores transfer over to Morrisons supply.
The above compares to a current £4.4 billion market cap and 12.77p of dividends for last year. For the current year, the half-year ordinary dividend was increased by 5.7% to 2.04p and for the final 2020/21 ordinary dividend the company expects to declare based on underlying profit before the payment of business rates but notes that there no current plans to pay a special dividend – last year that contributing 6p per share of the dividend. However, a return to the previous dividend and beyond can be expected going forward – suggesting a prospective 7%+ yield. Even a bit over 5% suggests a return to 240p+ share price levels of early 2019 and therefore at a 181.75p offer price and up to 195p, this is an Income buy.
This first appeared on the N50 website which Tom Winnifrith runs with Steve Moore & Lucian Miers. To access the website ahead of the next share tip from Tom & Steve and a new shorting piece out just last Friday and another this week click HERE
Filed under: Wm Morrison, Iconic Labs, Babcock, Velocys, Hawkwing, Remote Monitored Systems
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