Morrison: A Safe Harbour In Stormy Waters

Published in Company Comment on 8 September 2011

Morrison has been a rare winner so far this year. Is it time to sell?

Morrison's (LSE: MRW) first-half results were always going to be good.

In cash-strapped times, the tendency is to move to cheaper grocery shopping. So the supermarkets at the lower end of the snobbery scale tend to do better.

Sure enough, Morrison reported a 7.3% rise in first-half profits as record customer numbers went through the doors. Like-for-like sales were up by 2.2%, beating forecasts at a time when its main rivals are expecting a fall in revenues.

Morrison's shares are ahead by 9.4% factoring in the final dividend, since I thought it to be Britain's best value supermarket in January. They now stand at 295p. This is no mean feat considering the market backdrop.

In January, I said: "If the consumer environment really is as difficult as the boss is telling us, then Morrison should benefit from this in relation to its peers in the year ahead".

This proved to be accurate. The group's main UK-listed rivals Sainsbury (LSE: SBRY) and Tesco (LSE: TSCO) are down by around 20% and 10%, respectively, over the same period -- Asda is owned by Wal-Mart (NYSE: WMT.US).

Where's the value now?

So Morrison has certainly proved to be the safe harbour in stormy waters many investors perceived it to be before the sea got really rough in the summer. The question now is whether it's time to switch allegiance to one of the rivals.

In short, I'd say "yes, probably" if you have to pick just one, but any of the three will be reasonably good investments from this point.

Sainsbury is now slightly cheaper than the other two on the basic value metrics of price-to-earnings ratio (P/E), a yield of 5.4% and price to tangible book value of just over one after its heavy falls. And it was on this basis that I bought in last month at 281p.

If you believe the brokers' anticipated growth into 2012 for Tesco, then this, the UK's biggest supermarket, just has the edge on a P/E of 9 for next year. And Tesco has the advantage of deriving almost half its revenue from overseas.

But there's not much in it across the board. So using your own gut instinct, if you don't see the economy improving any time soon, then Morrison is one to stick with for the foreseeable as a safe haven.

More from David Holding:

> David owns shares in Morrison & Sainsbury. The Motley Fool owns shares in Tesco.

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Comments

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richjfool 08 Sep 2011 , 10:45am

I'm happy to stick with MRW. I even added to my holding in the recent turbulence.

I don't think its that they are at at the lower end of the snobbery scale, but that they are focusing on what is important to their customers, - keeping costs down and fresh food, and not over-diversifying into areas outside their specialism.

F958B 08 Sep 2011 , 11:10am

Morrison are a decent business selling for a sensible price.
There's absolutely no reason to sell and good reason to look to accumulate on weakness - although the shares offered a better buying opportunity several months ago.
There is little to choose between Morrison, Sainsbury and Tesco at current prices; each have their good and not-so-good points.

However, after the slaughter of the financial and commodity companies in recent weeks, it would not be a surprise to see those most-battered shares lead the market bounce, in preference to defensive shares.

True investors should stick with Morrison.
Speculators may wish to look elsewhere for an adrenaline-pumping rollercoaster and the chance for a quick profit.
You are unlikely to "get rich quick" from buying supermarket shares, but you are very likely to "get rich steadily".

Basia02 08 Sep 2011 , 1:21pm

The best potential of all the supermarkets. I had been buying since the plummet after the merger with Safeway. That has been sorted and they are now a buy on fundamentals. However they did not fall much when the latest plummet took place, and have already recovered their small fall. I decided to cash in a 60k hlding and switch. Whilst I am sure Morrisons will go up, they only had about 10p to recover whilst many other good companies had lost pounds. These I believe present a better opportunity to make money

snoekie 08 Sep 2011 , 4:15pm

Since I bought in 04 there has been an increase and on that price, the return is getting near to 5%

dougie186 08 Sep 2011 , 6:12pm

I agree with Richjfool- stick with Morrisons for the long term.They are "on the ball" - know what their customers want in the areas they serve, their prices and offers are keen and the staff helpful and polite.The snobs will eventually come down to earth!

max22222 12 Nov 2011 , 4:16pm

I bought Morrison after it popped up on my loose value filter in July '09. The forecast yield was 3.4%, and I regarded it as being somewhere between large cap. value and HYP.

Two and a bit years on, the forecast full year dividend of 12.27p gives me a purchase price yield of 5.1% alongside a market matching 31% increase in value, so a satisfactory outcome.

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