LONDON -- Morrison's
This year hasn't been quite as kind to shareholders who stayed on for the ride. After the shares entered 2012 at 326 pence apiece, general sentiment and fears over the real reasons for the departure of the finance director sent them down to 261 pence earlier this week (though a 7.53 pence final dividend has been paid en route).
The outgoing FD was credited with turning the company away from the financial abyss Morrison faced after its takeover of Safeway led to a slump in profits.
Nevertheless, this was a price at which I decided to buy into the shares again on a "buy four, get one free" basis, as I believe them to be worth something like the 325 pence they were a few months ago.
Setting such price targets is a dangerous game, of course; things change. Still, the shares are currently 266 pence, at which the anticipated yield is a respectable 4.5% this year, with a price-to-earnings ratio of 9.5. Of course, both these figures improve next year if the brokers are proved right -- and I'm as sure as an investor can be that they will be.
Nicely boring, good value
That's because Morrison is a safe haven -- a nicely "boring" business. It has a reasonably healthy balance sheet with gearing of 27% and a price-to-tangible book value of 1.3. The company is also busy buying back its own shares, with a goal of "retiring" 1 billion pounds of equity by next March.
In uncertain economic times, our tendency is to move toward cheaper grocery shopping, so Morrison generally does well. That said, it is facing competitive pressures from both sides of the food chain. And unlike the other major food retailers, Morrison has made a strategic decision to protect profit margins, rather than entering pricing wars.
There are two sides to every market. Perhaps competitive pressure from Tesco and Wal-Mart's Asda makes Morrison's overall strategic position too difficult. And perhaps Sainsbury's recently improved performance has come at the cost of some of Morrison's market share. But such fears look priced in too far to my mind, so I expect Morrison's shares to move ahead by 15% to 20% or so over the next 12 months. Time will tell…
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