ShoreCap sticks with 'buy' stance at Morrisons, but consensus at 'hold'

7th May 2015 09:29

Shares in Morrisons plunged on Thursday after the grocer reported a worsening of like-for-like sales trends in the first quarter, though analysts at Shore Capital remained upbeat with a 'buy' rating.The broker admitted that the company has a long way to go in its turnaround efforts, but the new chief executive David Potts is taking the right steps to improve the business.LFL sales fell by 2.9% in the first quarter, worse than the 2.6% decline seen in the fourth but still better than ShoreCap's forecast of -3.2%.ShoreCap analysts Clive Black and Darren Shirley said that it is still very early in Potts' tenure "but we sense he is bringing a deep rooted and fundamental change to Morrison's that is for the better"."Given the long-term work streams, the new CEO has cut out an ineffectual queue management system, ?ordered a spring clean of the stores and more importantly, we sense, embarked upon a deep rooted review of operation," they said."Such work takes time to determine, even for a wise hand in a fast changing market, and as such we expect an ongoing programme of self-improvement, revolving around, category-by-category, range-by-range, store-by-store reviews."Despite ShoreCap's positive outlook, Hargreaves Lansdown Stockbrokers said that analyst consensus opinion currently stands at a 'hold' and that "patience is clearly required" from shareholders."For now, and weighing progress made to date - debt has been further reduced - and the group's comparatively strong balance sheet against concerns that it remains the most exposed to German discounters Aldi and Lidl, analyst consensus opinion currently signifies a 'hold'," it said in an email.Meanwhile, Peter Ward, a dealer at London Capital Group, said investors were "not happy" with the update."Whilst a full review of the business is underway, without a full plan expected until September, investors may be happy to look elsewhere, and as we have highlighted recently, away from the sector in general, as it goes through its toughest period for decades," Ward said.The stock was down 6.8% at 176.5p by 10:39.