Broker snap: Morrisons' valuation 'undemanding', says Jefferies

12th Sep 2013 10:20

Jefferies has reiterated its 'buy' rating and 310p target price for supermarket group Morrisons, saying that the stock's valuation is 'undemanding' despite its recent strong run.Morrisons' share price advanced on Thursday morning despite the company reporting flat sales and falling profits and margins in the first half as it hiked it interim dividend by 10%. Jefferies said results were "broadly as expected", albeit a bit "mixed"."As expected Morrisons reported a mixed H1 given the margin effort of reversing the Q4 12/13 trading pressures and the increasing revenue costs of growth initiatives," the broker said. "Still, undemanding valuation and a clear reduction in capex intensity from here onwards point to an improving outlook (admittedly partly reflected by the c20% share price rebound of the past three months)."The supermarket reduced its space expansion to around 350,000 square feet annually from 2014/15 which Jefferies said will result in a "sharp capex reduction" from this year's £1.2bn and should "crank up free cashflow"."The extent to which peers respond to Morrisons space rationality remains a major swing factor. Still, the group is demonstrating a level of discipline currently absent in other quarters. The shares have rebounded strongly from the June lows, and this may cap near-term gains. We look forward to evidence of further like-for-like improvements as a future catalyst."The stock was up 2.82% at 305.58p by 11:24.BC