Broker snap: UBS downgrades Morrison to 'neutral'

16th Nov 2012 10:49

UBS has cut its recommendation for supermarket giant Morrison from 'buy' to 'neutral', saying that the stock's sector premium is perhaps not appropriate right now.The broker said: "Morrison remains a business with admirable qualities, operating in an industry which, in our view, is less overtly hostile than many believe. The business is fundamentally well-managed, has high freehold participation, and material efficiency programmes (plus the end of the share buyback) help support earnings."However, analysts highlighted that the trading momentum has fallen "alarmingly adrift of the competition" in recent months. UBS is concerned that Morrison could struggle to diagnose and effectively sort out the underlying issues."There remains the danger that, as Safeway found previously, operating as the number four in this market is a structurally challenged position."Consensus forecasts have been lowered by around 10% in the year-to-date.The broker admits that the shares are not really expensive, trading at 9.3 times next year's earnings, but "trading vulnerability and the risk of ongoing downgrades suggest [...] that a sector premium is not appropriate".The target price for the shares has been reduced from 340p to 270p.Shares were down 0.7% at 257.1p in mid-morning trade on Friday.BC