The Investment Column: Morrison is back on track

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The Independent Online
FOR A business that is a perennial takeover favourite, Wm Morrison is actually doing rather well. After a fallow period a couple of years ago when growth seemed to have stalled, the business has re-started its store opening programme, invested in refurbishments and spent money in distribution and other areas like a new packaging centre.

The results have been impressive as yesterday's 11.5 per cent increase in full-year profits to pounds 151.4m confirms. The company has now increased sales and profits for 30 consecutive years and this is all the more impressive as it is one of the so-called second-tier supermarkets that one might suspect is under increased pressure from the major players.

With that pressure increasing due to consolidation in the sector, many have expected the Bradford-based Morrison to succumb to an approach from one of the leading supermarket chains such as Sainsbury's which has not got a strong presence in the north.

But with the Morrison family owning 40 per cent of the shares any deal would need to be friendly and chairman Ken Morrision seems in no mood to sell.

Looking at the company's record, it is not hard to see why. The shares rose 16.5p to a new high of 256.5p yesterday compared to a 149.5p a year ago.

Like Asda, it prides itself on keeping things simple. It has no loyalty card and concentrates on keeping prices low.

Though little known in the south east, Morrison is a very strong brand in Yorkshire and other areas in the north where it is successfully battling against Asda. Like-for-like sales were up by 3.1 per cent in the first six weeks of the year.

This is hardly startling but the group is also hoping to improve the gross margin through improvements to the distribution network.

On NatWest Securities' forecast of pounds 165m the shares trade on a forward p/e of 19. That seems too high to chase for now. Hold.