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Shares in grocer Morrison top the UK 100 this morning after a Xmas trading statement that easily beat expectations (total like-for like sales ex-fuel +2.8% vs +1.8% est.), challenging even last year’s tough comparables, thanks to strong UK consumer spending during the festive period. Reassuringly, we saw stronger than forecast contributions from both the Retail (2.1% vs 1.4% est.) and Wholesale (0.9% vs 0.4% est.) channels, suggesting a functioning growth strategy, with online growth exceeding 10% as it tries plays catch-up with bigger rivals.
The only blot on the update is management leaving full year guidance unchanged. This is preventing the shares from benefiting from the type of short squeeze we saw for Next last week (5.3% of shares on loans for short positions; shares popped 10%) after it not only beat consensus but also upped the mid-point of full year guidance. With 11.5% of shares out on loan, a Morrisons guidance upgrade was clearly needed to help the shares back to 2017’s 3.5yr highs of 252p, bettering this morning’s 4.8% jump at the peak.
Do we attribute management reluctance to upgrade as conservatism, designed to engineer a full year beat come the start to Feb? Or should we consider it prudence in the face of still tough conditions for the UK consumer? A break above 230p does get the shares back in the upper half of last year’s trading range, following a tough Nov/Dec, equating to a 16% bounce form the lows, but an even more optimistic message from management was clearly required in order to challenge the highs.
Listen out for the message from Sainsbury’s own Xmas trading update tomorrow (shares +1.9% today) and both Marks & Spencer (+1.6%) and Tesco (-0.1%) on Thursday. The latter is perhaps struggling today after the latest Kantar grocery market data showed continued market share gains for German discounters Aldi and Lidi, challenging its #1 position, and Christmas sales growth in the mid-teens that exceeds the big 4 by a factor of 5!
Mike van Dulken, Head of Research, 9 Jan 2018
This research is produced by Accendo Markets Limited. Research produced and disseminated by Accendo Markets is classified as non-independent research, and is therefore a marketing communication. This investment research has not been prepared in accordance with legal requirements designed to promote its independence and it is not subject to the prohibition on dealing ahead of the dissemination of investment research. This research does not constitute a personal recommendation or offer to enter into a transaction or an investment, and is produced and distributed for information purposes only.
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