Today brings more good news for investors in WM Morrison Supermarkets (LSE: MRW), the share price up 2.24% on publication of its Q1 trading statement. This continues a strong comeback by the grocery chain, its stock rising nearly 40% over three years.
Wonky winner
Group like-for-like sales excluding fuel rose 3.6% in the 13 weeks to 6 May (1.9% including fuel). Total sales jumped 3.8% excluding fuel (2.1% with fuel).
Morrisons continues to invest in the customer shopping trip while volume growth accelerated. Its has launched its ‘Wonky’ brand of low-priced fruit and vegetables and a low-priced own label Savers range, while its new Womenswear range now features in almost 130 stores.
Fresh
Morrisons is also a wholesaler now, supplying new partner McColl’s through a rolling programme of around 25 stores per week during the first quarter. This contributed 1.8% to group like-for-likes, putting it on track to hit £700m by the end of the year, rising to £1bn a year in time.
CEO David Potts hailed “a strong start to the year, again becoming more competitive for customers while delivering growth on growth,” and talked up the group’s “exciting new ranges, new store openings, strong supermarket and wholesale growth.”
Fruity
Net debt should continue to fall while expectations of another strong year remain unchanged, but my colleague Royston Wild is wary of the stock, citing price wars, the rise of Aldi and Lidl, and the mooted Sainsbury’s-Asda tie-up.
Trading at a forecast 19 times earnings with a yield of 2.7%, covered twice, the price is not exactly compelling. However, today’s bullish update and promising forecast earnings per share (EPS) growth of 6% and 8% in the next couple of years suggest that Morrisons is still fresh and fruity.
Hit the beach
It’s a rainy day for holiday bookings company On The Beach Group (LSE: OTB), whose share price is down 12.46% after it reported a £1.1m loss from the collapse of budget airline Monarch. This cast a cloud over its interims for the six months to 31 March, putting positive figures, such as 19% growth in group revenue to £23m, in the shade.
Adjusted UK EBITDA rose 17% to £17m, with daily unique visitors up 23.9% to 34.1m, which converted into strong booking and share growth, supported by modest and tactical discounting. However, online marketing costs are high, swallowing 40% of revenue, as it works to drive traffic to its Sunshine.co.uk brand.
Bring me Sunshine
The group’s net debt jumped to £11.6m, from £2.3m in the first half of 2017, reflecting “normal seasonal working capital requirements” and £12m for the funding of the Sunshine acquisition. It declared an interim dividend of 1.1p per share, up from 0.9p last year.
Chief executive Simon Cooper hailed a “solid performance”, while admitting the flight capacity constriction following Monarch’s collapse drove up seat prices and cut bookings. But he remains confident of delivering full-year results in line with expectations. This is a focused operation.
The company’s stock is up 80% over the past year, but with a forecast valuation of 27.2 times earnings, expectations are sky-high, and today they were disappointed. However, with EPS forecast to grow 25% this year and 22% next, the outlook could be brighter than today’s sell-off suggests.