UK: Morrisons shares jump on property sale talk

By Hannah Abdulla | 13 January 2014

  • Morrison's reportedly considering up to 10% of propeties
  • Retailer under fire from shareholders following Christmas results
  • Analysts say retailer needs to focus on improving current offering 
Morrisons may consider selling 10% of properties following poor Christmas sales

Morrisons may consider selling 10% of properties following poor Christmas sales

Morrisons shares jumped today (13 January) on reports the retailer could unlock cash for shareholders by selling off some of its store portfolio.

However, analysts have warned the move could only represent a short-term win for some investors. 

Activist investors are reportedly snapping up Morrisons stock in an attempt to force the under-performing retailer to sell up to 10% of its owned properties - equating to about GBP800m (US$1.3bn). Morrisons shares were up 6.52% at 12.26 GMT today. 

Morrisons declined to comment on a potential property sale. 

While repositioning its properties may help improve the retailer's cash position, it needs careful consideration, Clive Black of Shore Capital warned. Black questioned whether a short-term win with "some shareholders" would benefit the company in the long run and whether they would stick with the company "for the duration."

Both he and analysts at Bernstein Research suggested that while the retailer might favour a sale and leaseback approach, like the one Tesco has in place, Morrisons may struggle to extract fair value for its properties based on their current state.

Moreover, focusing solely on re-establishing its position in the property market, is not enough to "save the company," commented Bernstein.

Morrisons trading performance has come under sustained pressure. The company reported a drop of 5.6% in like-for-like sales last week and forecast annual underlying profits to be "towards the bottom end" of current market expectations. Consensus forecasts for Morrisons' underlying operating profit range from GBP783m (US$1.29bn) to GBP853m.

While the retailer put the losses down to its under-representation in the online and convenience channels, analysts have said the problems relate more specifically to a lack of differentiation and its inability to compete on value with Asda and the discounters, Aldi and Lidl.

"We think the company's top priority should be a new strategy to combat the growth of the discounters. The current news on extracting some value on property is encouraging, but will only assist in the short term, where a longer term fix is necessary," said Bernstein.

Black agreed, adding Morrison needs to "underscore its reputation as a value based superstore, competing effectively with the hard discounters and Big Four players alike, whilst seeking to more effectively and gradually garner broader appeal."

Sectors: Financials, Retail

Companies: Asda, Tesco, Morrisons, Aldi, Lidl

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