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Morrisons offers a compelling growth story

Supermarket Wm Morrison has neither the dizzying geographic reach nor the deep range of products of larger rival Tesco, but it is a compelling growth story. Questor says buy.

Yorkshire-based supermarket chain Morrisons released full-year results last week. Pre-tax profit over the year to January 30 rose from £858m to £874m on sales of £16.5bn. Debt fell from £924m to £817m.

The company has one of the strongest balance sheets in the sector. Almost 90pc of its properties are freehold, meaning that it is asset rich. Last week the company said that it will return £1bn to shareholders, and pledged to up its dividend by at least 10pc for the next three years.

As well as having strong foundations, the retailer's growth story looks compelling. Morrisons is the UK's fourth-largest supermarket, which is not a great place to be.
However, Dalton Philips, its energetic chief executive, is pushing ahead with growth plans on a number of fronts. Morrisons will launch a small chain of convenience stores along the M62 corridor, and has been buying up dotcom companies as it looks to move into internet shopping.

Last week it paid £32m for a 10pc stake in New York website FreshDirect, an eccentric but probably worthwhile move. It is also toying with adding non-food lines to its ranges (including speaking to George Davies, the Next founder, about designing a clothing line).

There remain 7m UK households without easy access to a Morrisons, which means there is plenty of potential for new stores.

Morrisons trades on a 2012/2013 price-earnings ratio of 9.8 times. This is lower than rivals. With a market cap of £7.3bn, it is the UK's second-largest listed retailer after Tesco.

Amazingly, it is worth as much as Marks & Spencer, Dixons and Ocado combined.

Source : James Hall - The Telegraph

13 March 2011
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