Broker snap: Charles Stanley adds Morrison to shopping list

4th Jun 2009 12:57

Supermarket chain Wm. Morrison's first quarter trading update was ahead of market expectations, prompting Charles Stanley to upgrade its rating on the stock.The broker now advises clients to accumulate the shares, having previously rated the shares as a 'hold'.'The strong sales performance was boosted by food price inflation, although the benefit is difficult to quantify, as the company does not disclose its own internal measure of price inflation,' said analyst Sam Hart.Growth has been especially impressive away from the group's traditional heartland in the north of England, as the chain makes good on its pledge to go from 'national to nationwide', though Charles Stanley doubts that the company can maintain this sort of growth rate once food price inflation tails off.Charles Stanley has bumped up its earnings forecasts for 2009/10 by 1.5%, with earnings per share (EPS) expected to hit 18p. The EPS estimate for 2010/11 has been lifted by 3.5% to 21p. The shares are priced at 13.8 times projected 2009/10 earnings, putting them at a premium to sector peers Tesco (12.2x) and Sainsbury (13.5x), but the premium is justified in Charles Stanley's view, based on 'Morrison's superior earnings growth, the strongest balance sheet in the sector, the highest proportion of freehold property (c92%) and industry leading sales momentum.'