Market News & Analysis
Morrisons points to post-Christmas retail comedown
Ken Odeluga January 7, 2020 11:10 PM
The sector outlook remains weak, despite Morrisons’ less bad than expected sales
Wm. Morrisons Supermarkets showed no signs of having outperformed the UK high street’s recent unimpressive trend on Tuesday, though its stock still enjoyed its best day since mid-December. The rise of as much as 3.7% acknowledged that key sales at Britain’s third-largest grocer by market share were less bad than expected. Sales at stores open for over a year and excluding fuel—called like-for-like sales—fell 1.1% in the third quarter. That compared to an average analyst estimate, published on the group’s website, of 1.6%. The group didn’t break out data for the key Christmas weeks, though within the trend of the quarter and beyond, the likelihood of sales growth over the festive season looks low.
Industry data, also out on Tuesday, continued to paint a less than solid picture too, including for Morrisons. Market researcher Nielsen said U.K. grocery sales over the last four weeks rose just 0.5% from a year earlier, the slowest growth since 2014. The latest release by another researcher, Kantar, showed grocery sales rose just 0.2% in the 12 weeks to 29th December, the weakest rate since 2015. Furthermore, Morrisons saw another loss of UK market share in 2019’s final months, according to Kantar, leaving the £4.7bn group with 10.3% compared to 10.6% a year earlier.
The overhang of weakness across the sector takes a faint shine off data at the operator level. This included Morrisons’ 22-week like-for-like reading. It dropped 1.7% when analysts were expecting a 2.2% slide. Morrisons, which operates around 500 UK stores, said trading conditions remained “challenging”, with customer uncertainty consistent with that seen over the past year. The comments put a dampener on hopes for an outright ‘Boris Bounce’ in the wake of the Conservative Party’s landslide election win last month. It will help clear the Brexit logjam responsible for chilling consumer sentiment, though deeper damage to the economy is set to linger.
In the wake of its sales update, Morrisons continues to see profit for the 2019/20 year “as within the current range of analysts’ forecasts”. With investors expecting pre-tax profit growth to come in below 2%, expectations were already low. But the impression that Morrisons stayed on track by the skin of its teeth is inescapable. A continuation of lacklustre growth in Morrisons new financial year that will begin in April, therefore looks to be the line of least resistance. On that basis, after a 10% share price decline over the past year, it’s tough to see much upside for Morrisons shares on the back of recent trading, even if sales weren’t quite as meh as expected.
A similar theme was evident across the sector on Tuesday. Shares in Sainsbury’s also rose. Tesco stock, last year’s best performer among the Big 3 supermarkets, only inched higher. A 25% rise in 2019 may leave the shares more vulnerable to a sell-off in the wake of a lacklustre seasonal performance than rivals. Sainsbury’s will report sales on Wednesday, with Tesco’s update scheduled for Thursday.
- MRW continues to track close to lows last seen during the 2016, around 200p. It has erased gains that peaked as high as 270p in late August 2018
- One implied positive is that the stock has broken out of the falling channel trend over about a year between September 2018 to last August. The breach hasn’t enabled the shares to rise though, given that a horizontal channel has immediately formed to replace the declining one
- The trend now looks indecisive, as corroborated by MRW’s zig-zagging RSI oscillator. Even if 190p support holds the picture implies that the momentum required to overcome the 211p ceiling is lacking
- Loss of 190p support would obviously point to a further test of last August’s 176p cycle low.
Wm. Morrison Supermarkets Plc. – Daily 07/01/2020 15:07:45
This report is intended for general circulation only. It should not be construed as a recommendation, or an offer (or solicitation of an offer) to buy or sell any financial products. The information provided does not take into account your specific investment objectives, financial situation or particular needs. Before you act on any recommendation that may be contained in this report, independent advice ought to be sought from a financial adviser regarding the suitability of the investment product, taking into account your specific investment objectives, financial situation or particular needs.
GAIN Capital Singapore Pte. Ltd., may distribute reports produced by its respective foreign entities or affiliates within the GAIN Capital group of companies or third parties pursuant to an arrangement under Regulation 32C of the Financial Advisers Regulations. Where the report is distributed to a person in Singapore who is not an accredited investor, expert investor or an institutional investor (as defined in the Securities Futures Act), GAIN Capital Singapore Pte. Ltd. accepts legal responsibility to such persons for the contents of the report only to the extent required by law. Singapore recipients should contact GAIN Capital Singapore Pte. Ltd. at 6826 9988 for matters arising from, or in connection with the report.
In the case of all other recipients of this report, to the extent permitted by applicable laws and regulations neither GAIN Capital Singapore Pte. Ltd. nor its associated companies will be responsible or liable for any loss or damage incurred arising out of, or in connection with, any use of the information contained in this report and all such liability is hereby expressly disclaimed. No representation or warranty is made, express or implied, that the content of this report is complete or accurate.
GAIN Capital Singapore Pte. Ltd. is not under any obligation to update this report.
Trading CFDs and FX on margin carries a high level of risk that may not be suitable for some investors. Consider your investment objectives, level of experience, financial resources, risk appetite and other relevant circumstances carefully. The possibility exists that you could lose some or all of your investments, including your initial deposits. If in doubt, please seek independent expert advice. Visit cityindex.com.sg for the complete Risk Disclosure Statement.
Cryptocurrencies are not legal tender currency and trading of derivatives on Cryptocurrencies are currently not covered under any regulatory regime in Singapore. Consequently, investors should be aware they do not have protection under the Securities and Futures Act (Cap. 289). Please ensure that you are fully aware of the risks.