The UK’s supermarkets have been struggling for the shopper’s pound during the recessionary years, and one of the outcomes has been stagnating share prices. Of the top three, only J Sainsbury (LSE: SBRY) (NASDAQOTH: SBRY.US) has seen its shares rise over five years, and even then they have only just kept pace with the FTSE 100.
Tesco shares are down around 8% over five years, having lost 5% over the past 12 months.
And my subject for today, Wm. Morrison Supermarkets (LSE: MRW) (NASDAQOTH: MRWSY.US), has seen its shares go precisely nowhere over the past year with a five-year drop of nearly 10%.
Here’s a look at Morrisons’ figures for the past five years, together with the latest consensus forecasts for the next three years:
| Feb | Pre-tax | EPS | Change | Dividend | Change | Yield | Cover |
|---|---|---|---|---|---|---|---|
| 2009 | £655m | 17.35p | -12% | 5.8p | 2.1% | 3.0x | |
| 2010 | £858m | 20.50p | +18% | 8.2p | +41% | 2.8% | 2.5x |
| 2011 | £874m | 23.00p | +12% | 9.6p | +17% | 3.6% | 2.4x |
| 2012 | £947m | 25.55p | +11% | 10.7p | +11% | 3.7% | 2.4x |
| 2013 | £879m | 27.26p | +7% | 11.8p | +10% | 4.7% | 2.3x |
| 2014(f) | £576m | 24.70p | -9% | 12.9p | +3% | 5.0% | 1.9x |
| 2015(f) | £598m | 25.60p | +4% | 13.3p | +4% | 5.1% | 1.9x |
| 2016(f) | £630m | 27.0p | +5% | 14.0p | +5% | 5.4% | 1.9x |
Comparing well
I spoke recently of how much I like J Sainsbury, and if we examine Morrisons’ figures above, they compare well.
We’re looking at similar dividend yields and cover, with Morrisons actually slightly ahead with its 5%, 5.1% and 5.4% forecast yields for the next three full years, compared to 4.7%, 4.9% and 5.1% for Sainsbury. (Yields have risen slightly since I last looked in December, as the share prices have fallen.)
Comparing forward P/E valuations puts Morrisons in a favourable light too, with its multiple coming in a little below that of Sainsbury for each of the three years of forecasts — for 2014, we have a P/E of just 10.4 for Morrisons, compared to Sainsbury’s 11.3.
So what gives?
Out of favour
Well, Morrisons saw earnings drop in 2009, and there’s a small fall expected for the current year. But looking at longer term trends it seems to be keeping its earnings and dividends growing at a similar pace to Sainsbury. And Morrisons shares are on a lower P/E than Tesco, too, which recorded an 11% fall in EPS for the year to February 2013 and looks set for a bigger fall this year.
Debt levels and other valuation ratios are similar to or better than Sainsbury, so it looks to me as if sentiment has just deserted Morrisons. That 10% share price fall over five years, while the FTSE 100 has gained around 50%, looks seriously overdone to me.
Online shopping
One reason for Morrisons’ disfavour is likely to be its tardiness in getting online shopping going. But after the company’s tie-up with Ocado last year and a plan to get first deliveries started this month, that will soon be history.
In fact, in a Q3 update released in November, the firm told us that “In January 2014, as planned, we will commence online food deliveries in Warwickshire direct from the Dordon CFC followed by an extension to Yorkshire shortly thereafter, using a delivery spoke in Leeds. By the end of 2014 we expect to be serving over 50% of UK homes, including London.“
It’s a bit late, but it sounds like it’s going well.
Verdict: Set to deliver in 2014!