Muted response to Morrisons’ progress as share price falls

Despite unveiling a 4p special dividend along with an 11% rise in pre-tax profits this morning, confidence in Morrisons’ progress failed to wow investors as the group became one of the biggest fallers on the FTSE100.

Shares in the retailer are down 5.3% at 214.3p after the group announced free cash flow had fallen from £670m to £350m.

It was a disappointing response for the grocer, which reported underlying profit before tax of £374m for the year to February, a 5.8% rise in revenue to £17.3bn, up from £16.3bn the year before, and a 2.8% rise in like-for-like sales excluding fuel and VAT.

“The combination of rising sales, a healthy jump in pre-tax profits, lower debt, an increased ordinary dividend and even a special dividend of 4p sounds very appealing but investors are still declining to stock up on shares in Morrison,” says AJ Bell investment director Russ Mould.

“One reason for this is that operating profit fell year-on-year, while all of the profit uplift came from lower financial charges owing to the hard work Morrisons has put in to reducing its debt pile.

“Lower debt means less risk, and that is a good thing, but investors may want to see earnings from the grocer’s core day-to-day operations rise before they take a view that the company really is seeing off the threat posed by the discounters Aldi and Lidl, let alone more established rivals such as Tesco, Sainsbury and Asda.

“After all, Morrison’s operating margin slipped a little, from 2.9% to 2.7%, to suggest the competition remains as brutal as ever.

Mould said that nevertheless, Morrison’s boss David Potts and his team can look back on what they have achieved with “some satisfaction, especially as they have cut net debt by so much and got sales, profits and dividends all growing again.”

Morrisons shares closed at 215.3p, down 4.86%.