Shore Capital's 'sell' rating for Morrisons under review after H1 beat

11th Sep 2014 10:52

Analysts at Shore Capital have placed their long-standing 'sell' recommendation for Morrisons under review after the supermarket group beat its profit forecasts for the first half.The company back in March unveiled an aggressive price-cutting strategy and self-help programme to improve its position in a highly-competitive market over the long term.As such, underlying pre-tax profits in the six months to 3 August were down 51% at £181m on sales that fell 4.9% to £8.5bn. Nevertheless, Shore Capital had estimated a bottom line of nearer £165m.Analysts Clive Black and Darren Shirley highlighted recent market-share data that has indicated that Morrisons has seen better trading since the end of its first half, whilst items-per-basket trends have improved.However, they said that the retailer has at the same time benefitted from favourable comparatives with last year as well as considerable vouchering."Hence, it is too early for us to over-react to a demonstrably better trading trajectory, but if it is sustainable then the model that management presented in March may be starting to gain some traction, something that would put some support into the group's share price," they said.They pointed out that the stock trades at a near-20% discount to its net asset value of 212p ("using net book value rather than current market values").Black and Shirley said they were holding on to their forecasts for the full year, estimating a pre-tax profit of £325m. However, they said that if present expectations are met then management's pledge to increase the annual dividend by at least 5% can be honoured "and so the rating will compress through share-price appreciation".Morrisons' shares had started Thursday's session firmly higher but were down 0.6% at 175.6p by 11:11.