ShoreCap cautious ahead of Morrison's Q3 update

3rd Nov 2014 09:46

Current trading conditions at Wm Morrison are a "worry to our minds", according to analysts at Shore Capital who repeated their 'hold' rating on the stock ahead of the supermarket chain's third-quarter update this week.Shore Capital said it expects a further "material" contraction in like-for-like (LFL) sales after a "very worrying" 7.4% decline in the first half. The broker predicts a third-quarter decline of 5.5-6.5% when the company reports on 6 November."We expect Morrison's to continue to report trading that is a little short of grim," said analysts Clive Black and Darren Shirley, adding that the firm is now entering a "critical quarter"."Whilst management guided earlier in the year to expect LFL sales to remain weak as it takes time for new commercial initiatives to feed through, the prospect of circa minus 6% LFL sales in Q3 tests the mettle of the market as to how its customers are reacting to the new lower price trading strategy, which effectively took hold in-store in May 2014."While the UK supermarket sector may be coming closer to its nadir, they said that a greater visibility on earnings is necessary before they can turn more positive on the industry."In uncertain times, Morrison's woes do little to endear us to a sector that amounts to little more than a motorway car crash for investors; as such we suggest that said investors read the warnings signs and still steer clear of British superstores for now."Morrison was trading 1.1% higher at 156.46p by 09:57 on Monday.