ii view: Morrisons – profit down but dividend up

An income yield of over 3% and the possibility of a deferred special dividend is tempting.

First-half results to 2 August

• Revenue down 1.1% to £8.73 billion
• Pre-tax profit 25% to £148 million
• Net debt up 14% to £2.8 billion
• Ordinary interim dividend up 5.7% to 2.04p per share

Chief executive David Potts said:

"From the start of the pandemic we stepped up and put the company's assets at the disposal of the country to help feed the nation. Morrisons is at the heart of local communities and responded quickly when it mattered most, and we are very grateful for the British public's appreciation of all the vital work our colleagues are doing. I believe we are seeing the renaissance of British supermarkets. 

"We are now looking forward to holding on to what we created in the first half, building on our colleagues' inspiration and innovation, and sustaining the momentum of a broader, stronger Morrisons. I'd like to again thank every Morrisons colleague for their incredible efforts: you've earned your key worker status several times over."

ii round-up:

Operating around 500 outlets across the UK, Morrisons (LSE:MRW) is the country’s fourth-largest food retailer with a market share of just over 10%. It purchased rival Safeway back in 2004. 

The retailer’s online business is currently conducted through arrangements with both Ocado (LSE:OCDO) and Amazon (NASDAQ:AMZN). It also supplies McColl's (LSE:MCLS) convenience stores with its branded products, along with petrol retailers Harvest Energy and Rontec.

For a round-up of these latest results, please click here. 

ii view:

Morrisons is currently pursuing seven strategic initiatives, including simplifying and speeding up the company, making its core supermarkets strong again and developing popular and useful services. Under the last initiative, it recently agreed with retirement home builder McCarthy & Stone (LSE:MCS) to provide a doorstep delivery service to all its homeowners in over 400 neighbourhoods across the UK.

Under Covid-19, while food sales on a same store basis rose by 8.7%, a near-9% fall in fuel sales under the pandemic lockdown meant that overall revenue retreated by 1.1%. Additional staff and store costs totalling £155 million led to a one quarter fall in profits. Prudence under Covid has also seen the Bradford headquartered retailer defer a decision on a previous special dividend. 

For investors, the continuation of the ordinary dividend payment and a near-6% increase in this latest interim payment suggest some confidence in the outlook. It currently sits on a historic yield of 3.7% (not guaranteed). A possible deferred special dividend payment come the full-year results in March 2021 would further add to the share's appeal among income investors.  But with rivals Tesco (LSE:TSCO)and Sainsbury's (LSE:SBRY) still working hard on their offerings, and the outlook for Covid-19 remaining highly uncertain, room for caution remains. 

Positives: 

• Attractive dividend payment
• Partnering with both Ocado and Amazon

Negatives:

• Both Aldi and Lidl have been gaining market share
• Rivals such as Tesco are executing their own growth initiatives

The average rating of stock market analysts:

Strong hold