Wm Morrison. Supermarkets Plc Executive Arrested Over Insider Trading: Should Shareholders Be Worried?

Wm Morrison. Supermarkets Plc (LON: MRW) must not split its focus.

Mark Stones

Mark Stones (TMFMumbojumbones) joined The Motley Fool in 2014 and initially worked as a writer for Fool.co.uk, before joining the Fool’s analyst programme. Mark earned a BA in English from Loughborough University. Although he spends more time reading annual reports than Russian literature these days, he still appreciates a novelist’s antipathy toward the accepted view, which is a useful attitude when trying to sniff out hidden gems on the stock market. His approach to investing has been largely influenced by the principles of Warren Buffett and Peter Lynch. He also takes a special interest in the work of healthcare companies. Outside of investing, Mark plays guitar, enjoys good writing and has a guilty passion for combat sports.

Published 21 January, 2014 3:51 pm GMT

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

After a tough Christmas with worse-than-expected sales, there’s more bad news today for Morrisons (LSE: MRW) (NASDAQOTH: MRWSY.US).

Paul Coyle, a director responsible for the supermarket’s internet delivery company and property arm, was arrested on suspicion of insider trading. While it would be rash to jump to any conclusions — Coyle may not be guilty of any wrongdoing — you may be wondering how this revelation could impact shares.

Wrench in the works

The arrest of Coyle raises doubts over leadership and reinforces the fact that the chain could be in severe trouble.

Morrisons has wasted plenty of time failing to move into online, and the lack of sales success over Christmas was partly attributable to this. Part of the supermarket’s strategy for growth was the roll-out of its new website, which is set to reach 50% of the UK population by the end of 2014.

A retailer today without a substantial online presence will only become obsolete, and moving into the space was always going to result in teething problems. One has to wonder if dealing with the fire of today’s allegations will disrupt focus elsewhere.

How much trouble?

Morrisons is priced cheaply at 255p and the expansion into online could well deliver solid gains should it succeed. But there are a multitude of risks to investing in Morrisons.

Of the big four supermarkets Morrisons has the smallest share (falling to a historic low of 11.1% last September). This leaves it especially vulnerable to its aggressive discount competitors, with Aldi and Lidl having a combined 7% market share.

The slowness with which it rolled out its online expansion wasn’t the only way the chain was looking outmoded. A lack of a loyalty program, for instance, means there’s no way to find out the needs and wants of its customers.

Rising debt coupled with the fact that sales are down could see its dividend yield (5%) come under threat, therefore all things considered, Morrison’s probably isn’t your best choice if you’re looking to make a million in the market.