Understanding The Business Of WM Morrison Supermarkets (MRW)

Overview

WM Morrison Supermarkets PLC (Ticker symbol: MRW) is a British corporation engaged in operating retail superstores in the United Kingdom. The company was founded in 1899 by Sir Ken Morrison and is headquartered in Bradford, the United Kingdom. The company went public in 1967. After thirty-five years since going public, the company became a part of the FTSE 100 index for the first time in April 2001. Every week, around 11 million customers visit the company’s store, with 110,000 employees to deliver service to them. Through the online portal, the company covers 11 million households. Andrew Higginson is the Chairman of the company since the end of January 2015. He joined the company as Deputy Chairman and Chairman-Elect in October 2014. The Chief Executive Officer of the company is David Potts. He joined the group on 16 March 2015. [optin-monster-shortcode id="wxhmli4jjedneglg1trq"]

Operations

The company’s operating segments include in-store and online home delivery grocery retailing business, serving consumers across the UK through almost 500 stores. The company offers a famous range of products such as Free From, World Foods, Food to Go among others, sources and processes most of the fresh food that it sells through its manufacturing facilities. It operates from over ten manufacturing sites spread across Britain with over seven regional distribution centres and a national centre servicing its supermarkets and runs through 491 stores, and 334 petrol filling stations. The company is also engaged in manufacturing and distributing fresh food, preparing and supplying seafood, processing fresh meat. It is involved in investing in, developing and maintaining properties, as well as offering insurance and leasing services. The company also holds a pharmaceutical license.

Key Financial Metrics - H1 FY2019

(Source: Company Filings)

(Source: Company Filings)

Financial Highlights -H1 FY2019

  • The like-for-like sales ex-fuel/ex-VAT increased by 4.9% in the first half of FY2019 vs 3% for the corresponding period in H1 FY2018.
  • Revenue rose to £8.80bn, up by 4.5% from £8.42bn a year ago, backed by a rise in like-for-like sales.
  • Reported underlying profit before tax accelerated by 9% to £193m in H1 FY19 against £177m reported last year. Strong sales growth flowed through to accelerate underlying profit before tax. Moreover, the start of the company’s store-pick capability and faster roll-out of wholesale supply to McColl’s helped improve the margins.
  • Underlying earnings per share increased by 8.5% to 6.28p from 5.79p as reported last year.
  • In H1 FY19, Free cash flow decreased to £242m from £352m in H1 FY18.
  • Net debt fell by £44m since January 2018 to reach £929m.
  • Reported Interim ordinary dividend was 1.85p, an increase of 11.4% from the last year.
  • A special interim dividend of £00p declared, total interim dividend increased by 132% to £3.85p.

Ratios

ratios

(Source: Thomson Reuters)

Ratios Commentary

  • The profitability ratios of the company are lower than its peers in 2018. From the last 2 years, reported profitability ratios have been consistent and stable.
  • The liquidity position of the company is also worse than its competitors and has not improved in the last few years.
  • On the leverage front, the company’s debt-equity ratio of 0.29x has declined in 2018 against the previous year and is well below than the industry median.

Share Price Performance

  • On 22nd February 2019, MRW share closed at GBp 229.60, down by 0.11 per cent against its previous day closing price.
  • Stock's 52 weeks High and Low is GBp 270.50/GBp 10. At the closing price, the share was trading 15.12 per cent lower than its 52w High and 14.74 per cent higher than its 52w low.
  • Stock’s average traded volume for 5 days was 7,863,408.00; 30 days - 8,056,462.93 and 90 days - 8,875,293.31. The average traded volume for 5 days was down by 2.4 per cent as compared to 30 days average traded volume.
  • On the valuation front, the stock was trading at a trailing twelve months PE multiple of 17.8x as compared to the industry median of 15.9x.
  • The company’s stock beta was 0.79, reflecting relatively less volatility as compared to the benchmark index.
  • Total outstanding market capitalisation was around £5.44 billion and a dividend yield of 2.41 per cent.

Growth Prospects and Risks Assessment

  • The company is evolving with time and has started focusing on wholesale as well as online business. The company has signed agreements with brick and mortar as well as online retailers like Amazon.
  • British consumers’ spending has decreased for much of the past decade though wages have grown more quickly than inflation in recent time.
  • The pace of economic growth slowed after the 2016 referendum and looked to have lost more momentum since late 2018 as Prime Minister Theresa May struggled to gather support for her Brexit plan.
  • The Grocery sector continues to see high levels of competition with ‘The Big Four’ continuing to lose market share.
  • Fluctuations in commodity prices and foreign exchange rates stemming from uncertainty around the impact of Brexit could hurt the company’s margins.

Conclusion

The company will have to look-out for competition from the online marketplace. Though the sales have been steady till now, the operations will have to be evolved to keep up with the investors’ expectations.


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