There’s much to like about WM Morrison Supermarkets PLC’s (LON:MRW) medium-term prospects, according to Jefferies, which is upbeat about all three listed-UK grocers as extra costs related to Covid are unwound.
Changes to ASDA’s structure and softening ‘competitive dynamics’ are also supportive, Jefferies analyst James Grzinic said in a note.
Dividend payment has and continues to be a positive for Morrison along with self-help opportunities that could support business metrics for a number of years to come, Jefferies highlighted.
Jefferies forecasts earnings (EBITDA) to shift up by some £353mln over the next three years and pointed to an expected working capital inflow for the 2021/22 period, which it says should fund a cumulative three year dividend per share 40.4p.
The US broker reckons investors ought to take a cue from Morrison’s management which sees “clear mid-term earnings growth”.
Analysts at Jefferies commented: “It has often been put to us that MRW’s late start in online will represent an ongoing drag on profitability for years to come; in reality it could well represent an incremental lift to profit delivery if the industry rationally develops the UK online proposition across more disciplined lines.”
“We expect the competitive context to become a little more favourable for MRW; most critically thanks to the change of ownership at ASDA, and the funding structure through which that is controlled; and secondly because, whilst still an ongoing feature, discounter openings are reducing in the UK as market share dynamics suggest that it has been quite some time that sales densities have stopped improving for Aldi and Lidl.”
Jefferies rates Morison as a ‘buy’ with a 235p target, suggesting some 30.5% upside to the current market price of around 180p.