ShoreCap stays upbeat about cash generation potential at Morrisons

12th Mar 2015 10:38

Shore Capital has retained a 'buy' rating on Morrisons despite a "tumultuous" year for the supermarket group, hailing the company's free cash flow (FCF) potential in the future.Morrisons missed forecasts with its results on Thursday, with turnover falling 4.9% to £16.8bn in the year ended February 2015 and like-for-like (LFL) sales excluding fuel down 5.9%, though the decline did ease to just 2.6% by the fourth quarter. The company raised its dividend but signalled that next year's payout significantly."Tumultuous' is not an inappropriate word with which to characterise Morrison's financial year to January 2015," said analysts Clive Black and Darren Shirley."That tumult is reflected in some of the deepest contraction in LFL sales that we have ever seen from a mass-market superstore operator, a strategic volte face that structurally re-based group profits, articulated at the FY2014 results, and a business that next week has a new chairman year-on-year in Andrew Higginson and sees the arrival of the group's new chief executive, David Potts CBE."Looking ahead, Black and Shirley predict "another year of progress" with Morrisons planning to generate £2bn of operating FCF by the year ending February 2017, cut net debt and capital expenditure.They said that FCF is central to their positive stance on Morrison's shares: "Without material leasehold obligations compared to its UK superstore peers, and noting a comfortable pension position too (c£40m deficit), we see the group as being in a relatively favourable position with which to commence shareholder friendly initiatives."These include restarting a progressive dividend policy, the possibility of a share buyback and the capability to consider complementary acquisitions or organic investment again.Morrisons shares, which had fallen sharply early on, were flat at 206.5p by 10:38.