Britain’s fourth-largest grocer, Wm Morrison (LON:MRW), has reported slight growth in its turnover and profit, but its share price has still climbed as investors recognise the difficult trading environment.
For the six months to 29 July 2012, the supermarket saw sales of £8.9 billion and turned an operating profit of £475 million. This represents an increase of 2 per cent and 4 per cent over the respective results in the same period last year.
Sir Ian Gibson, Morrison’s chairman, took succour from the performance. ‘With ongoing commodity inflation continuing to weigh on already fragile consumer confidence and market conditions becoming ever more challenging,’ he said, ‘we have had to work even harder for our customers during the first half.’
The news saw shares in Morrison jump 4.5 per cent to 293.4p, although this is still significantly lower than the peak of 328p hit in January. This gives it a relatively cheap valuation, with a price-to-earnings ratio forecast to fall from 11 to 10.3 by Digital Look.
Despite the resilient performance, the company plans to reduce its capital expenditure by £200 million over the next two years. This comes after Morrison revealed that its net debt had shot up from £1 billion to £1.7 billion, and its gearing from 20 per cent to 32 per cent.
Analysts delivered a mixed reaction to Morrison’s results. Sheridan Admans, investment research manager at The Share Centre, praised it for scaling back its spending.
‘We continue to recommend Morrison as a hold’, he commented, ‘as it has a strong conservative approach to management and should reap rewards for shareholders over the long term.’
But Phil Dorrell, director of consultancy Retail Remedy, warned that this strategy could be counterproductive.
‘Morrison is a retailers’ retailer. Its down-to-earth approach, solid standards and near-legendary focus on cost control are both its best friend and its worst enemy. Pragmatism, it has plenty. But panache, contemporary appeal – far less so.’
Investors, though, will be buoyed by the supermarket’s decision to raise its interim dividend by 10 per cent to 3.49p a share.