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Hargreaves Lansdown: Profits plunge at Morrisons as board recommends CD&R offer

Susannah Streeter, senior investment and market analyst at Hargreaves Lansdown, comments:

“The cards have again shuffled on the private equity bargain hunters seeking to acquire W M Morrison. Although there is still a chance an auction scenario could play out, it looks like the higher bid from Clayton Dubliier and Rice might now be on a smooth conveyor belt to approval with the company recommending its offer of 285p per share. 

There is of course still a chance Fortress will wade in with a higher offer and these latest results will offer plenty of food for thought over whether an even higher bid is justified. There is a disappointing headline number with profit before tax and exceptionals falling 37% to £105 million in the first half. The closure of in-store cafes and lost sales in fuel and takeaway snacks was an £80 million hit and extra Covid expenses nibbled away another £41 million.

The company reckons these troublesome costs will largely evaporate in the second half and profit for the year will beat last year’s £431 million. Certainly two year like for like sales growth of 8.4% is encouraging. Also the acceleration of the Morrisons rebrand roll out to McColls stores and the expansion of Morrisons on Amazon is a welcome trend, with opportunities to significantly increase online sales. But there could be hiccups on the way to a higher profit trajectory, given the looming supply chain issues for the industry. Morrisons says it has a plan up its sleeve to mitigate potential cost increases, and stock shortages, but it’s hard to forecast just how tough the next few months may be. However with uncertainty looming Morrisons won’t want to look past its sell by date, so there is likely to be intense focus now on getting a deal signed, sealed and delivered.”

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