Investors who followed analysts' advice get caught out

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The Independent Online

Investors who followed the advice to buy Morrison shares on 10 June from the supermarket group's house broker, ABN Amro, were left nursing big losses yesterday after the retail chain announced a profits warning, wiping more than 11 per cent off its shares.

After a meeting with management on 9 June to discuss sales trends and the performance of converted stores, the ABN Amro analyst James Collins came out reiterating his buy stance on Morrison with a 300p target. The management meeting did not discuss profits.

However, it transpired yesterday that Mr Collins made his recommendation even though he was expecting a profits warning at the time he published his 10 June buy note. Mr Collins issued a follow-up note yesterday after the profits warning, repeating his 300p target and his positive stance on the stock. "Having expected a warning of this kind for a while, we are confident that today might provide a good buying opportunity for the brave," yesterday's ABN Amro note said.

Mr Collins said his 10 June note did spell out to investors the short-term risks to Morrison profits of the Safeway deal and the fact that the company was introducing bigger price cuts at Safeway and more quickly. "I think I was pretty straightforward that this would put short-term profits under pressure. However, the extent of yesterday's profits warning did surprise me. Perhaps I should have made that clear in the noteon 10 June," he said.

The musings of analysts from the company's own broker are watched closely by institutions. Investors who followed Mr Collins' advice and bought Morrison shares on 10 June were last night sitting on losses of up to 16 per cent, depending on what time they bought on 10 June.

Morrison shares finished yesterday at 200p compared to a close of 232p on 10 June after the ABN Amro buy note.

A spokesman for ABN Amro said the buy note and profits warning demonstrated its analysts' independence from the bank's broking clients, such as Morrison.

ABN Amro has not been the only big broker to be caught out by yesterday's profits warning. UBS sent up Morrison shares 2.9 per cent on 16 June, making it the best performer in the FTSE 100 on the day, after urging clients to buy. Yesterday its clients who bought on the advice were out of pocket by up to 18.5 per cent.