Broker snap: Morrison deserves discount until momentum improves, says Credit Suisse

15th Mar 2013 10:04

Credit Suisse has trimmed its estimates for supermarket group Morrison despite an in-line 2012, saying that it is looking for evidence of sustained momentum.The broker said it was left with new questions after the company's full-year results this week. Negative like-for-like (LFL) growth in the fourth quarter was worse than expected: "Morrison put this down to weak promotions/communication, but such extremes warranted more explanation," the broker said.Meanwhile, while the market hailed Morrison's announcement of a potential relationship with Ocado to begin internet shopping, Credit Suisse said it did not explain how this links in with the existing relationship with Fresh Direct (online grocer in US) or how online will launch.Furthermore, the broker said that Morrison's message on its 'Fresh Format' stores - ones with greater space for fresh and chilled foods - was mixed: "a lower-key roll-out during 2013/14 seems to us not an endorsement of success so far".A poor LFL performance in the fourth quarter has led Credit Suisse to revise down its 2013/14 LFL and margin forecasts and to include the guided £40m of development costs. The profit before tax forecast has been cut by 3.5%, but lower tax/interest means that earnings per share (EPS) estimates remain unchanged."Now should be Morrison's time. The meat scare and strong brand advertising should play to Morrison's vertical integration and provenance strengths. And its efficiency initiatives are on-track. However, EPS momentum is weak and execution, online, and c-stores remain a drag," the broker said. A 'neutral' rating and 255p target price have been maintained for the stock, with Credit Suisse saying that the shares look fair value.The stock was down 1.5% at 272.06p by 11:23 on Friday.BC