Morrisons: Shareholder shun special div

Morrisons: Shareholder shun special div

Henry Croft, Research Analyst at Accendo Markets, commented this morning:

Morrisons (MRW) shares opened near the top of the FTSE 100 leaderboard this morning after announcing a 4p special dividend, however a largely muted response has since seen the share price turn negative.

The UK’s fourth largest supermarket chain announced FY like-for-like sales growth (ex-fuel) of 2.8%, marginally ahead of the 2.7% analysts expected and an improvement on last year’s 1.9% increase, although some shareholders likely noting a slowing from H1 (+3.0%) despite returning to 2.8% sales growth in Q4. With that said, pre-tax profits improved by 17% YoY as food price inflation returns to the UK after years in absentia, although management noted that FX headwinds remain for imported goods.

The announcement of a special dividend likely helped to attract a few buyers early this morning, however without a commitment to further special dividends, and capping a more than 10% rally from February’s lows, many shareholders are deciding to take profits and run. Others are also likely noting the retreat of retail, largely offset by an improvement in wholesale in the latter part of the year to keep FY like-for-likes ahead of estimates. While management is currently guiding towards £700m in wholesale supply sales before year end, and £1bn in ‘due course’, a continued retreat in the retail contribution to LfLs may see the need for these estimates to be raised further in order to build upon the two years’ of growth currently enjoyed at the group.

With the ever-present threat of German discounters continuing to snap at the heels of the established big four, further sales growth is likely require to inspire shareholder confidence as today’s special dividend – presented as a solitary offering rather than the first of many – appears to be shunned. Despite maintaining its 10.6% UK market share, according to Kantar, in order to stave off the impact of discounters perhaps this payout could have instead been used to further improve Morrisons’ online offering, as a noticeable lack of internet shopping from Aldi (bulky non-food items only) and Lidl (no online sales) provides a clear and present opportunity to offer customers a service not offered by the plucky challengers.

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