US hedge fund sees Morrison uplift from property sale

16th Jan 2014 15:30

FTSE 100 grocer Morrison could boost its shares by 45 per cent if it hived off most of its property estate, according to a US hedge fund group that owns stakes in several UK supermarkets. Morrison, which owns the freehold of around 90% of its stores, in September suggested one of the possible strands of its strategy review could be to unlock cash from its property estate. Elliott Management has apparently suggested to Morrison, according to sources cited by Bloomberg, that rather than a sale and leaseback of some buildings, investors would benefit more if the supermarket group placed 75% of its freehold properties into a separate property company and floated 25% of this vehicle on the stock market. The hedge fund, which apparently owns less than 1% of Morrison, has apparently suggested that both Sainsbury and Tesco, in which Elliott also has shareholdings, would benefit from a similar strategy. In light of rumour around the Morrison's property plans, analyst Clive Black of Shore Capital argued in a note on Monday that a comprehensive property sale might not be of long-term benefit for the company nor for shareholders.He questioned whether this would be in the interest of the company in the long-run, even though there could be short-term gains for some shareholders through distributions."Will the shareholders that may seek short-term radical action be there for the duration?" he asked. "Morrison is a low margin business and the desirability of intensifying operational leverage from a major property programme is highly questionable in our view."Indeed, it is our view that any radical property action could jeopardise the viability of the group to our minds. Indeed, with its stated structure of four viable national supermarket chains in the UK, we wonder if the Competition Commission may have a say in the matter if radical property disposals were drawn out of Morrison."Shares in MRW spiked on Thursday afternoon, registering a 2.18% rise to 253.2p over the day.OH