Share price drops despite Morrisons turnaround

Cautious investors caused a share price drop at Morrisons yesterday despite results which showed the first rise in profit at the supermarket in five years.

Pre-tax profits increased by 50% as chief executive David Potts’ turnaround plans took hold, and turnover was up 1.2% to £16.3bn from £16.1bn

It saw its fastest growth in five years according to Kantar Worldpanel earlier in the week.

Despite this, its share price was down 6.56% at closing yesterday as Morrisons’ warning on import costs overshadowed its stellar performance.

Richard Hunter, head of research at Wilson King Wealth Management went on to Share Radio to say that this was down to “magic” management comments in the final year results, sounding too good to be true to investors.

He also said that Morrisons had warned that it would be affected by inflation and the impact of imported food price rises, as well as the”savage” competition that is ongoing in the supermarket sector. Tesco and Sainsbury’s have made major acquisitions in the form of Argos and Bookerto combat the rise of the discounters Lidl and Aldi.

Investor Interactive suggested that the share price drop raised questions over whether Potts can sustain this level of growth for the supermarket, and that he had been successful in reaching for the “low hanging fruit”.

Other indicators including items per basket were down 5.4%, offset by a 4.3% increase in the number of transactions instore.

Clive Black of Shore Capital said: “The share has performed well over the last year, which is pleasing to record and so may lead to a period of understandable consolidation.
“However, we are reminded of still high level of shorting activity, which we sense needs to still unwind in due course, whilst a self-improvement and advancement of the investment story has most definitively not reached the end of the line in our view; in fact it is still rather close to departure hall.”

Despite this wobble, Morrisons’ share price has increased by 21% in the last six months, and since December 2015 it has risen 77%.

Morrisons’ share price, for 6 months to 10 March 2017, courtest of London Sctock Exchange Group