Morrisons this morning (14 March) published a set of full-year figures that it admitted fell short of expectations. Aside from that, it revealed it has been in talks with specialist online food retailer Ocado on a deal that could help the supermarket chain with plans to set up an online service. Analysts gave mixed views about both announcements.
Panmure Gordon analyst Philip Dorgan
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“Pre-tax profits were in line with lowered expectations. Far more important is the update to strategy, with the announcement that it will launch online in food in January 2014. Investment in multi-channel will see revenue costs more than double to GBP40m. The strategic update is, we think, reasonable. Much needs to be done, but at least Morrisons has joined the party.”
Conlumino analyst Joseph Robinson
“These results reflect a difficult year for Morrisons, which has under-performed in a highly competitive food and grocery market. The grocer has found itself squeezed, amid a failure to effectively communicate its strengths to consumers. At the same time, it has been poorly equipped to capitalise on the current growth spots in the market; namely online and convenience.
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“Against this backdrop, Morrisons has struggled to communicate its competitive strengths effectively enough. At the value end, its investment in campaigns such as ‘Payday Bonus’ has been drowned out amid a sea of marketing and promotional activity among its main competitors. At the more premium end of the market, Morrisons does have a strong story to sell to the more affluent consumer, particularly for quality and freshness; however it is simply not communicating these strengths effectively enough.”
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By GlobalDataRichard Hunter, Head of Equities at Hargreaves Lansdown Stockbrokers
“Whilst there is little doubt that some progress is being made, Morrisons remains something of a ‘jam tomorrow’ stock.
“The potential tie-up with Ocado could conceivably help Morrisons to make up some lost ground, whilst the 10% hike in the dividend underpins an already attractive yield of 4.1%, giving some solace to an otherwise beleaguered stock. However, the company has been slow in developing its online presence, is under pressure particularly from discount rivals such as Aldi, and the 48% increase in net debt – whilst perhaps understandable for future progress – has come at a difficult time. With the ongoing loss of market share and pressure on margins also in the mix, investors are likely to continue to give the company a wide berth.”
Rahul Sharma, founder VWO Consulting, on Twitter
“Morrisons says the cost of its online, c-store push will be GBP40m in 2013 after GBP20m in 2012. Lower than what analysts assume, but is it enough? It’s a bit troubling that Morrisons is talking with Ocado. Thought the 10% stake in Fresh Direct and Kiddicare deal were to get online know-how.
“If Morrisons move comes to anything, hard to see it as anything but positive for Ocado. New income stream for co with stretched cashflow.
“Morrisons-Ocado move another example of even middling web businesses high in demand by struggling retailers trying to play catch up online.”
