JPMorgan upgrades Morrisons, but dividend cut predicted next year

10th Mar 2015 09:43

Analysts at JPMorgan Cazenove have removed their 'underweight' recommendation on Morrisons' stock, saying that bad news is already baked into the price of the supermarket operator."We upgrade Morrison to 'neutral' from 'underweight' as we believe the combination of new management, improved trading and greater cost cutting opportunities, stronger balance sheet and less demanding valuation vs the other UK grocers may limit share price downside in the coming months," the US bank said.It said that the rising short interest and Morrisons' improving trading momentum posed a risk to its previous negative rating, as it hiked its target price from 135p to 225p.Ahead of the grocer's annual results on Thursday, JPMorgan said it is not expecting a further major "profit re-basing announcement" at this point following a number of warnings last year. It forecasts an underlying pre-tax profit of £422m, in line with guidance of £405m-435m.The bank has penciled in just a 2.5% decline in like-for-like sales excluding petrol for the fourth quarter, which would mark a substantial improvement on the 7% average decline over the first nine months.However, while JPMorgan expects Morrisons to fulfil its promise of a 5% increase in the dividend for the year just gone, it does predict the announcement of at least a 50% cut in its dividend for the year ending February 2016.After a strong start on Tuesday morning, shares in Morrisons dropped into the red, trading 0.7% lower at 206.7p by 09:54.