Broker snap: Morrisons' valuation 'looking reasonable'

21st Jan 2010 12:16

Supermarket chain Morrisons like for like sales growth over the Christmas period may have been the envy of rivals Tesco andSainsbury but it was broadly in line with expectations, according to Charles Stanley.Like for like sales excluding VAT and petrol in the six weeks to 3 January were up 6.5% versus the consensus forecast of 6.3%. The marginal outperformance versus expectations was not enough to provoke Charles Stanley into revising its estimates. It is still projecting earnings per share (EPS) of 20.5p for 2010 and 23.5p for 2011, the shares on a multiple of 12.7 times projected 2010 EPS, versus a multiple of 13.1 for Tesco.Morrisons left its full year guidance for profit before tax at £750m, which Charles Stanley said that, given the stronger than expected sales, 'implies there has been some investment in margin'.'Morrison remains well placed to deliver industry leading earnings growth over the next three years, driven by operating margin expansion and the introduction of new space,' opines Charles Stanley analyst Sam Hart.'The group has the strongest balance sheet in the sector (gearing c20%) and the highest proportion of freehold property (c87%). With the food retail trading environment expected to remain relatively benign and the valuation looking reasonable, we reiterate our Accumulate recommendation,' Hart said.