Shore Capital upgrades Morrisons to 'hold', welcomes new strategy

15th Sep 2014 10:40

Shore Capital has upgraded its rating for struggling supermarket chain Wm Morrison, saying that it sees an "improved risk-reward balance" after the company's woeful first-half performance.The broker, which put its 'sell' recommendation under review after Morrisons' interim results on 11 September, now rates the stock as a 'hold'.First-half results were "very poor and disappointing year-on-year", according to analysts Clive Black and Darren Shirley, but the 51% drop in underlying pre-tax profit to £181m was not as bad as the £165m that Shore Capital had pencilled in.Management reiterated full-year profit guidance of £325-375m and though Shore Capital has maintained its bottom-of-the-range £325m estimate, Black and Shirley said that "the group has that little bit less to do in the second half".Nevertheless, they expressed concerns about a "pretty awful" second-quarter performance by Morrisons, with the like-for-like sales decline worsening to 8% from 7.4% at the start of the year."With -8.0% from Q2, the exit rate for Morrison's going into Q3 is much weaker than we expected and we therefore harbour worries about current trading momentum and the time it is taking customers to recognise and support the new 'I'm cheaper' trading strategy, a strategic shift that we welcome by the way," they said.The analysts said that they are "much more content" with Morrisons' new strategy and its scope to "stabilise and progress thereafter".However, they did highlight possible heightened competition from the "potential Tesco iceberg to come", with speculation high about what its new chief executive will do to turn around the retail giant.Morrisons' investors are fearing yet another 'price war' between the Big Four supermarkets as a result of Tesco's potential new actions.Morrisons was trading 0.3% lower at 175.9p by 10:57 on Monday.