Spain Fund
21 Oct 2016
Shares should be under 140 ? Long time since I looked at supermarket shares and don't own any.Mystified why Morrisons shares not at their lowest level. Store near me always empty when I go. Some stuff getting cheaper so how can they make money?. Yes it's a sale but is there much profit?.. Any improvement in sales recently measured again atrocious results last year. Profit margins must be way downIndustry data shows Morrisons continue to see their market share chipped away at discounters Aldi, who sales increased by 11.4% and Lidl, which grew by 8.4%Morrisons market share2011 11.92015. 10.82016 10.4
Goodtogo
19 Oct 2016
what is going on at Morrisons hollyhead road coventry, they are trying to open to the public and do a total store refit..cant find anything and dust and rubbish all over the store..OMG
gamesinvestor
13 Oct 2016
Re: More MktCap than Sainsbury's "Perhaps that is enhanced further post-brexit if you manufacture your own rather than import from abroad with a depreciating currency."Herald, that's a very good point. Particularly when we are witnessing the spat between Unilever and Tesco.Probably a bit early to call the end of branded products, but surely there must be a price point that customers will baulk at and perhaps that point for Colman's mustard and expensive margarine is approaching?Games
Herald
11 Oct 2016
Re: More MktCap than Sainsbury's Superficially it seems odd that MRW could be a higher cap than Sainsbury's but it's the big manufacturing division which is the difference. This article from March estimates its worth around £1.5 billion. Perhaps that is enhanced further post-brexit if you manufacture your own rather than import from abroad with a depreciating currency. [link] Back in 2010 MRW was also mktcap higher before the Dalton mistimed, mispriced splurges - albeit he did keep investing in manufacturing.
Herald
11 Oct 2016
More MktCap than Sainsbury's Despite having a much lower market share the stock market value of MRW nudged past SBRY on Monday.[link]
Herald
05 Oct 2016
Re: UK Food Retail - comparative valuati... >>>Exit time soon Where does the money go then now that everything is higher.Like most pi I find timing the exit one of the most difficult things to get right so generally I don't bother and just hold forever. If you only have one stock this strategy doesn't work since it's either boom or bust - so a portfolio in diverse sectors is needed to try and ride out the inevitable storms.Since August 2005 I have traded a couple of times on MRW part holdings but since the start have received 92p in divis on the originals. When investing here in 2005 I picked the supermarket sector as a "safe" income generator and MRW as the most financially robust. Later the catastrophic Dalton wasted so many of these advantages and the German threat was not fully appreciated. Who knows if we are really out of the woods yet with one in 5 shares still currently shorted despite the SP recovery.
Bill1703
05 Oct 2016
Re: UK Food Retail - comparative valuati... "I think you are looking at a declining dividend, in line with their new divi policy, and possibly the share price with it -- although it's anyone's guess."Yes, I recognise your figures... though I have seen various forecast profiles in different places, the consensus to me is much flatter over the next c.2 years. And I am not sure to what extent any Argos synergies benefits have been reflected in estimates as yet. But still, I am not ruling out a further (modest) decline in EPS... and possibly divi too, if they stick rigidly to their policy.The big difference for SBRY is the current low P/E / high yield profile, which offers a much greater degree of valuation leeway / downside support, IMHO, compared to the recovery anticipation already built into TSCO and, to a less extent, MRW."On the balance sheet, MRW's strength comes from the higher proportion of owned property compared to SBRY, in addition to it being in a position to pay down debt faster - especially now that SBRY has committed to the ARGOS investment (I think!!)."Yes, I have always like that about the MRW b/s, though there are contrasting views on the merit of owning more freehold property which perhaps has questionable economic value as anything else other than retail space, at a time when retail is shifting inexorably to a more intimate, online experience? And MRW is trading at twice the price/book value as SBRY (1.4x vs 0.7x), which would seem to more than capture any advantage?But overall, I don't disagree with your MRW profile, and the recent rerating seems well justified and underpinned. "Still based on the Tesco announcement today and an 8% jump in their stock, it looks like the whole sector is experiencing a sentiment change for the better."Yes, and happy enough for MRW and SBRY to bask in reflected glory! Not that I am seeing anything in the TSCO figures to get too excited about - given what is already built into the valuation. Not much headroom / leeway there for execution slippage... and I don't think you can brush off the now-£6bn pension deficit. I no longer hold TSCO, but if I did, I would be seeing today's exuberance as a good opportunity to get out while the going is still optimistic!
gamesinvestor
05 Oct 2016
Re: UK Food Retail - comparative valuati... Hi Bill, these are the numbers I plucked for the historical growth rates before the wheels fell off the whole sector :-Year Ending Revenue (£m) Pre-tax (£m) EPS P/E PEG EPS Grth. Div Yield2012-03-17 22,294.00 799.00 28.10p 10.8 1.8 6% 16.10p 5.3%2013-03-16 23,303.00 772.00 30.80p 11.8 1.2 10% 16.70p 4.6%2014-03-15 23,949.00 898.00 32.80p 9.6 1.5 6% 17.30p 5.5%and these are what are seemingly forecast :-Year Ending Revenue (£m) Pre-tax (£m) EPS P/E PEG EPS Grth. Div Yield2016-03-31 23,506.00 579.98 22.80p 10.8 -1.9 -6% 12.08p 4.9%2017-03-31 24,851.06 594.42 20.36p 11.9 -1.1 -11% 10.52p 4.3%2018-03-31 25,919.55 578.11 20.40p 12.3 72.3 0% 10.60p 4.3%I think you are looking at a declining dividend, in line with their new divi policy, and possibly the share price with it -- although it's anyone's guess.On the balance sheet, MRW's strength comes from the higher proportion of owned property compared to SBRY, in addition to it being in a position to pay down debt faster - especially now that SBRY has committed to the ARGOS investment (I think!!).The P/E of MRW is backed by a return to a 36% earnings growth next year putting it on a PEG of 0.6, at least until end Jan 2017 -- and then the growth will slow again to about 6% ish -- guessing again.SBRY earnings are still declining.Still based on the Tesco announcement today and an 8% jump in their stock, it looks like the whole sector is experiencing a sentiment change for the better.Exit time soon Games
Bill1703
04 Oct 2016
Re: UK Food Retail - comparative valuati... "If I look at Sainsbury, it's P/E today is higher than it was when it was actually growing... in 2012-13 the P/E was 10-11 and the growth rate was 6-10%... Today the P/E is 12% and the growth is negative."Games - I have the SBRY P/E at 10x - my point was it would be 12x at my higher "fair value" target. But yes, I remember when it was down there back then, around the time I bought in originally - although I seem to remember the P/E moving around a bit, from there up to c.13-14x in that period (and higher than that in the more distant past, but I don't assume we will get back there!)I am not sure the growth rate was 6-10% on an underlying basis, certainly not over more than just one year, but I would have to check that. Nonetheless, I don't necessarily disagree that 10x P/E and 5% yield is maybe about right for a stock that is not growing (and current forecasts have earnings broadly flat over the next couple of years). The big difference here is the free cash flow profile, which could (I say, could) transform the investment proposition for SBRY and indeed the sector going forward. IMHO. Historically all the grocers struggled to generate any free cash, year in year out, with all spare capital being poured into the race for new store space, at ever diminishing returns, as well as fiddling around with format changes - probably excessive refurbishment spend too. But with capex being radically reined back you now have chunky FCF yields on offer, even on lower profitability. IF this can be sustained, or anything like it, it will boost earnings (in quantum and quality), and see debt being paid down rapidly and/or higher cash returns to shareholders - ideally, a combination of the two. This, for me, would merit a higher long-term rating than even my target 12x if it can be delivered on any sustained basis. "Sainsbury also has a far weaker balance sheet than Morrisons."Not much between them for me - if anything, SBRY has been showing stronger in the recent past but MRW is certainly currently improving at a faster rate, with its cash generation the best of the bunch. The big - and important - difference is that MRW is already at broadly twice the P/E and half the divi yield vs SBRY (current yr forecast P/E 21x, yield 2.4%), so the SP appears to anticipate the earnings and dividend enhancement which its premium FCF should be able to deliver. Whereas SBRY SP arguably gives little credit for a cashflow profile which is also very strong (albeit somewhat less so than MRW). "I might be wrong, but Argos looks like a wrong decision which will dilute SBRY going forward in the face of inexorable competition from Amazon and others."Maybe any difference of views comes down to this? I think Argos is a decent deal for SBRY, and worth more to the latter than it would be to anyone else... but not transformational, I don't think, and possibly as much a case of defending core SBRY earnings as anything else (though that is no small quality)."My money would stick with MRW and take any bounce in the SBRY share price to exit."As I said, I am happily sticking with both for now - with SBRY showing the stronger potential for near term upside. NB. had I done this analysis before the recent MRW recovery/rerating, I suspect it would have shown the two to be more equally attractive.And keep your eye on those FCF figures, this is the key to the investment story over the next few years. All IMHO, as always...
Bill1703
04 Oct 2016
Re: UK Food Retail - comparative valuati... "If I look at Sainsbury, it's P/E today is higher than it was when it was actually growing... in 2012-13 the P/E was 10-11 and the growth rate was 6-10%... Today the P/E is 12% and the growth is negative."Games - I have the SBRY P/E at 10x - my point was it would be 12x at my higher "fair value" target. But yes, I remember when it was down there back then, around the time I bought in originally - although I seem to remember the P/E moving around a bit, from there up to c.13-14x in that period (and higher than that in the more distant past, but I don't assume we will get back there!)I am not sure the growth rate was 6-10% on an underlying basis, certainly not over more than just one year, but I would have to check that. Nonetheless, I don't necessarily disagree that 10x P/E and 5% yield is maybe about right for a stock that is not growing (and current forecasts have earnings broadly flat over the next couple of years). The big difference here is the free cash flow profile, which could (I say, could) transform the investment proposition for SBRY and indeed the sector going forward. IMHO. Historically all the grocers struggled to generate any free cash, year in year out, with all spare capital being poured into the race for new store space, at ever diminishing returns, as well as fiddling around with format changes - probably excessive refurbishment spend too. But with capex being radically reined back you now have chunky FCF yields on offer, even on lower profitability. IF this can be sustained, or anything like it, it will boost earnings (in quantum and quality), and see debt being paid down rapidly and/or higher cash returns to shareholders - ideally, a combination of the two. This, for me, would merit a higher long-term rating than even my target 12x if it can be delivered on any sustained basis. "Sainsbury also has a far weaker balance sheet than Morrisons."Not much between them for me - if anything, SBRY has been showing stronger in the recent past but MRW is certainly currently improving at a faster rate, with its cash generation the best of the bunch. The big - and important - difference is that MRW is already at broadly twice the P/E and half the divi yield vs SBRY (current yr forecast P/E 21x, yield 2.4%), so the SP appears to anticipate the earnings and dividend enhancement which its premium FCF should be able to deliver. Whereas SBRY SP arguably gives little credit for a cashflow profile which is also very strong (albeit somewhat less so than MRW). "I might be wrong, but Argos looks like a wrong decision which will dilute SBRY going forward in the face of inexorable competition from Amazon and others."Maybe any difference of views comes down to this? I think Argos is a decent deal for SBRY, and worth more to the latter than it would be to anyone else... but not transformational, I don't think, and possibly as much a case of defending core SBRY earnings as anything else (though that is no small quality)."My money would stick with MRW and take any bounce in the SBRY share price to exit."As I said, I am happily sticking with both for now - with SBRY showing the stronger potential for near term upside. NB. had I done this analysis before the recent MRW recovery/rerating, I suspect it would have shown the two to be more equally attractive.And keep your eye on those FCF figures, this is the key to the investment story over the next few years. All IMHO, as always...
gamesinvestor
03 Oct 2016
Re: UK Food Retail - comparative valuation a... "Sainsbury too cheap"Hi Bill, In your analysis, I struggle with the above.If I look at Sainsbury, it's P/E today is higher than it was when it was actually growing.Exmple -- in 2012-13 the P/E was 10-11 and the growth rate was 6-10%Today the P/E is 12% and the growth is negative.In fact the pre-tax profit of SBRY in 2012 was £800M and today it's projected at £579MSainsbury also has a far weaker balance sheet than Morrisons.I might be wrong, but Argos looks like a wrong decision which will dilute SBRY going forward in the face of inexorable competition from Amazon and others.My money would stick with MRW and take any bounce in the SBRY share price to exit.Games -- But then again I'm the eejit that shouldn't have bought MRW in the first place!!
Bill1703
02 Oct 2016
UK Food Retail - comparative valuation analysis A quick summary of the comparative valuation picture - as I see it - as at the end of Q3 2016.In short, for me, Tesco still looks too rich at these levels, Sainsbury too cheap with Morrisons somewhere in between, much nearer to fair value. My key observation is that the market seems to give TSCO credit for a big recovery in core profitability which is far from guaranteed, whereas SBRY perversely is given little credit for its much greater operating and financial resilience over the past couple of years. VALUATION METRICS TSCO SBRY MRW P/E 37x 10x 28x Div yield 0.0% 4.9% 2.3% Div cover na 2.0x 1.6x FCF yield 7.3% 8.9% 10.5% EV/EBITDA 10.0x 5.8x 8.7x P/NAV 1.7x 0.7x 1.4x BALANCE SHEET / OPERATING METRICS TSCO SBRY MRW Net debt/EBITDA 3.4x 2.1x 2.2x Interest cover 1.4x 4.8x 4.0x Op margins: UK retail 1.2% 2.7% 2.5% Group 1.7% 3.0% 2.5%These figures use the most recent reported results, though I don't think forecast data would make too much difference - and forecasts have a habit of proving illusory. The TSCO SP seems to assume that margins recover rapidly (ie. broadly double) to where SBRY and MRW are, yet current year forecasts suggest only moderate growth in underlying EPS (from 5p to 6-7p), and the much weaker balance sheet will remain a big constraint - particularly if, as expected, they soon have to report a big increase in the pension deficit.In contrast, SBRY looks cheap in both absolute and relative terms on most counts - even in a sector which merits pretty lowly ratings and allowing for forecasts of a (small) decline in EPS and divi this year. And even if you don't expect anything special to emerge from the Argos tie-up. MRW looks reasonably pricey on P/E and divi yield, yet both are forecast to continue to grow decently again this year, and you have the best-in-class free cash generation profile. You could argue the toss on a number of things in here and I am open to debate, but FWIW, I will throw in my current "fair value" conclusions: TSCO - FV 140p (23% downside). 20x current year earnings is about the best I could give it, with no dividend for now and a balance sheet likely to get worse before it gets better. SBRY - FV 290p (18% upside). With resilient earnings performance and decent strong balance sheet, a P/E more like 12x (forecast div yield 4.0%) would hardly be demanding. MRW - FV 230p (5% upside). Looks about right after the recent re-rating, but continuing positive operating momentum and the cashfllow profile could support something a bit better. For full disclosure, I currently hold SBRY and MRW but no longer any TSCO.
Radaking
28 Sep 2016
Technical breakout Looks like a chart break out on MRW,got some resistance due around £2.40ish.If results keep improving we could see £3.00ish next year...........
gamesinvestor
16 Sep 2016
Group Net Debt This part is better than I expected :-"""Group net debt fell to £1,269m, down £477m from the end of 2015/16."""With so much owned property, I'm probably too negative on MRW, especially as it's now already cash flow positive and they expect to knock net debt down to £1Bn in 2017.Perhaps MRW can recover to a respectable annual profit closer to £500M or more, in which case it will be a lot lower risk.I guess there are a few sick shorters out there, in addition to a few surprised negative viewers like myself.Games -- Oh well, I'll go and enjoy my coffee with a view that one of my worse performers ain't quite so bad after all.
nk1999
15 Sep 2016
HL view "Our view:Morrison may still be a work in progress, but that progress looks increasingly rapid. The group are focusing on cash flow and reinvesting again and again into their pricing proposition. David Potts' strategic plans for the group make eminent sense; focus on the consumer, regain pricing competitiveness and improve the stores' appeal. With the highest percentage of freeholds (85% currently), Morrison is inherently cash generative, since less money is paid out in rents.There is no sign of an end to deflation in food pricing; Asda recently announced it would be cutting the prices on its own brand essentials by an average of 15%. The fall in sterling after the referendum is an added complication - whether supermarkets will be able to pass the increased price of imported food on to shoppers remains to be seen. But for now debts are falling as the group focuses on cash, and Morrison's financial position looks secure enough.Commercial income, i.e. volume rebates from suppliers, was £403m in FY16, accounting for all of the group's underlying profit before tax. Clearly, Morrison needs to reach a position where it is making a profit without having to ask its suppliers for rebates.Morrison has potential; billions of pounds of sales and a large freehold estate, with attractive cash generation qualities. But it still faces many challenges, not least the absence of a convenience offer of any scale and its under-representation online. On the latter point, the Group have announced plans to further expand their relationship with Ocado and Morrison will also be providing wholesale supplies of produce to the Amazon Pantry service.The sustained LFL sales growth shows that Morrison can generate sufficient extra sales volumes to offset the ongoing level of price deflation. Customers are coming back to the stores, as evidenced by rising transaction numbers. Finance charges are falling as debts are repaid, and if the positive LFL sales trend can be maintained, then Morrison could be looking at a brighter future. With the improving sales trend backed up by positive news on cash flow and debt repayments, Morrison look to have pulled safely through the worst."[link]
