Today I’m running the rule over two FTSE 100 headline makers in Thursday trade.
Going stale
Another financial update, another illustration of the enduring travails facing Britain’s ‘Big 4’ supermarkets.
Today it was the turn of Morrisons (LSE: MRW) to update the market. On the plus side, the company saw like-for-like sales (excluding fuel) rise 0.7% during February-April, a result that builds on the 0.2% rise posted during the previous quarter.
Morrisons had failed to record any quarterly growth in the four years prior to this, so this news signals that the company may finally be in recovery.
Indeed, chief executive David Potts lauded the effort the firm is putting in “to improve the shopping trip and save customers every penny we can,” adding that “customers are responding and satisfaction levels remain ahead of last year.”
Still, news that deflation clocked in at 2.6% underlines the strain Morrisons is facing to stall the galloping progress of Aldi and Lidl. And the supermarket said that it expects prices to keep on failing as it invests in further rounds of price slashing.
This is likely to play further havoc with earnings, of course. So while Morrisons may have thrown the kitchen sink at costly rebranding, store refits and closures and loyalty scheme revamps in recent times, these measures are unlikely to light a fire under profits while the so-called ‘price wars’ continue to rumble.
And with Morrisons dealing on an elevated P/E rating of 18.6 times, I reckon the supermarket remains far too expensive given its muddy growth outlook.
Ring up sterling returns
Telecoms giant BT (LSE: BT-A) also furnished the market with fresh trading numbers on Thursday, and its latest update certainly made for welcome reading.
BT advised that revenues leapt 6% in the 12 months to March 2016, to £18.9bn, as demand for its broadband and television services surged. This performance helped propel pre-tax profit 15% higher to more than £3bn.
The acquisition of exclusive live broadcast rights for UEFA Champions League and Europa League football propelled audiences for the firm’s BT Sport channels up 45% year-on-year, it advised. And the firm’s long-running broadband investment scheme continued to deliver the goods, with 25m homes now connected to its fibre network.
And BT plans to keep this number rising, the company also unveiling on Thursday plans to spend £6bn over the next three years on extending its super-fast broadband and 4G coverage. The telecoms titan is aiming to cover 95% of the UK with these services by the close of the decade.
The City expects BT to endure a rare earnings dip in the period to March 2017 as this colossal investment weighs. Still, I believe a consequent P/E rating of 14.6 times represents a great level to latch onto the firm’s terrific long-term growth prospects.