Wm. Morrison - the axeman cometh

Wm. Morrison: So, after five years, time has run out for CEO Dalton Philips. The move of Andrew Higginson (ex-Tesco FD, but untainted so far) in the Chairman’s role, has been brought forward. Almost before he gets his feet comfy under the desk, Higginson has announced that Dalton Philips has exited stage left. No successor has been announced with the search just getting underway. Maybe Philips was a trifle unlucky in that he joined Morrisons at the time that Lidl and Aldi were really starting to get noticed. He found a company with second tier computer systems, no home delivery service, no loyalty card scheme and no convenience stores. He has addressed all these, but maybe not well enough or quickly enough. I remember one rival being shocked and amused that Morrison’s were making simple errors such as putting convenience stores on the wrong side of the street for local footfall patterns. The tie up with Ocado on home delivery seemed loaded on favour of Ocado. He also dabbled in diversification (e.g. Kiddicare) to no avail. Perhaps history will say that he didn’t act fast enough and maybe the presence of a critical Ken Morrison as Honorary President inhibited him. For now though, the verdict has to be that he leaves with a tarnished reputation.

All the above over-shadowed this otherwise low key trading update, in which the LFL (ex-fuel) sales for the six weeks to 4^th January were revealed as -3.1%. At the same time (previously reduced) guidance was maintained with pre-tax profits for the year to 31^st January 2015, to be in the range £335m-£365m, with net debt of £2.3bn-£2.4bn. If this translates to around 11p of eps, then that is a PE of c17x, with the shares having bounced to around 185p. That doesn’t look enough to guarantee the 13p of dividend paid out last year, even though, in a fit of chutzpah, the interim was put up almost 5%. With changes in the board room, the standard pattern would now be for expectations for the year to 31^st January 2016 and beyond to be taken down to a level from which progress can be made. So this is another situation where income investors are faced by great uncertainty in an industry in disequilibrium. There really seems little rush to invest. (Neil Cumming^, 13^th January 2015)

These comments are not a personal recommendation to deal. Any investments can fall as well as rise in value, so you could get back less than you invest. I may have a financial interest in some of the stocks written about. www.dividendpower.co.uk or e-mail at info@dividendpower.co.uk Twitter:  @DividendPower