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Best of the boards: Marks & Spencer, John Menzies, Morrisons
By Harriet Mann | Fri, 7th November 2014 - 16:00
Marks & Spencer
What happened: Marks and Spencer (MKS) has dodged the bullet - warm autumn weather - hitting most retailers this quarter with better-than-expected half-year results. Clearly the City was won over - the shares rocketed as much as 9% to 441p on Wednesday, a level not seen for two months. But it's not been an easy few years and management remain cautious, which begs the question, has enough been done to ensure the high-street giant's recovery?
Certainly, chief executive Marc Bolland has thrown a lot of money at reviving the store’s fortunes over the past few years - over £2 billion in fact. He's been cutting costs, too. And these numbers are good.
Despite a flat second quarter, revenue rose 1% to £4.9 billion in the six months to 27 September, and underlying pre-tax profit grew by 2.3% to £268 million beating consensus estimates for £252 million. Margin improvement helped, as did strong demand for its upmarket food where sales were up by 3.6% and 1% on a like-for-like basis.
And the news prompted UBS to upgrade its recommendation to 'buy', expecting much more to come.
What users said: On the Interactive Investor discussion board, 'knob the bolt' reckoned M&S was now in takeover territory, "can't believe no one is sniffing around," the user said.
But 'Omaha man' replied: "who would want it and why?"
"Not as bad as feared is good enough for a rally in a positive market, but I struggle to see it doing anything other than relapsing from here," the user added.
'Deepsleeves' agreed: "If Bolland thinks his new website is any good then I can only assume he has never tried to use it. It’s a dinosaur and will eventually go same way."
But 'SBCC' was more upbeat: "The real gem in the results is the positive move in the margin. A 1.5 move is huge on General merchandise and the forecast is for this to be higher in the more important second half. The impact on profit will be substantial."
"Omaha man" added: "Technically it's interesting to see that the price has closed bang on the 200 day moving average. I find it hard to believe that won't prove a difficult resistance level to break, but then I didn't foresee such a positive response to results a couple of per cent ahead of expectations, so who knows."
What happened: Turbulence at its aviation business wiped out over a quarter of John Menzies' (MNZS) market value on Wednesday, driving shares in the newspaper distributor to new four-year lows. It's forced the company to warn on full-year profits both for this year and next, yet however uncomfortable it might be for new chief executive Jeremy Stafford, it is hardly unfamiliar territory.
Stafford has been in the job less than five weeks and already has one profit warning under his belt. But a year ago he was running the UK business at outsourcing giant Serco. It was on his watch that the company became embroiled in the prison tagging scandal which led to a string of damaging profit warnings.
Of course, Scotland-based John Menzies problems are very different. It runs a ground handling services business for passenger and cargo planes, and blames its warning on contract losses in Colombia, poor cargo returns in Australia where it relied too heavily on lower yielding shipments, and changes at Heathrow which have hit margins.
Aviation's overall performance has been mixed since July with revenues on a constant currency basis up 8%, cargo handling tonnes were up 8% and absolute ground handling turns up 15%. Menzies also saw contract wins in North America and Canada.
What users said: "I sold my holding of these shares a month ago at 568p, because it became obvious that the company has been in decline over several accounting periods," said 'numberbiter' on the Interactive Investor discussion board.
"Given the already constant decline shown in the accounts, it is a major worry that 'the outcome for the year will be materially [means substantially[ below Board expectations, following substantially reduced margins at Heathrow.' Reading between the lines of the interim management statement, it would appear that there has been a major CU, for which the Managing Director of Menzies Aviation has been sacked.
"Add 'constant decline' to 'substantially reduced margins' and 'increasing debt levels' and it adds up to 'disaster'. The market has trashed this share this morning, but when the dust settles there may be more to come. I would not buy this share back at even as low as 300p, unless there was strong evidence of a turnaround, which at the moment is not in sight."
"I hear what you are saying and indeed the share price has been bashed and the CEO has obviously messed up and fallen out with the board, but take a broader view the debt situation isn't as bad or any worse - take these figures for example," replied 'gamesinvestor'.
"In 2009 - The liabilities were £162.9 million and in 2013 they stood at £140.9 million - there were variants in the interim years but on balance this is an overall decline in debt levels when the business has been fairly stable. The operating margins at the group are and always have been slim, but again these have shown a steady improvement from 1.41% in 2009 and in 2013 it was 2.38%. The share capital has remained constant throughout, and the net gearing has fallen from 331% to 111% at the end of 2013.
"Are these not relative improvements? Again not one of my better investment decisions and not trying to blindly defend it, but perspective is often called for perhaps?"
'Jimmy Zoid' took the chance to buy in. "I think this is not a market problem, nor a strategic problem but rather an operational problem or two set against a background of on-going sales growth."
What happened: With a vicious price war underway and supermarket profit warnings dropping like confetti, this year was never going to be easy for Morrisons. (MRW) And sales in the third-quarter continued to fall, but the grocer is confident about the full-year and has narrowed the likely range of outcomes for profits. We repeat our thoughts first shared in September, that this is "more promising stuff," and Morrisons looks like a better bet than Tesco (TSCO) right now.
True, sales fell by 3.6% in the 13 weeks to 2 November, or 5.6% including fuel, and like-for-like sales fell by 6% and 8.3% respectively. That is pretty grim, but initiatives will take time to work through, and there is at least progress being made against other measures.
A 2.4% drop in items per basket year-on-year was much better than the 6.9% decline seen at the end of the last financial year. It's pumping millions into price cuts - £1 billion is available over the next three years - and in a unique selling point promises to price match the discounters Aldi and Lidl as well as Tesco, Sainsbury's and Asda. Morrisons' price card "is already proving extremely popular with customers," we're told.
What users said: "Pretty much as expected here in my 18.05 comment (4 Tuesday)," said 'jackdawsson' said on the Interactive Investor discussion board. "Far too early in MRW's strategic evolution for any decisive turnaround, but any underlying progress or indication of better profits ahead, liable to please markets. So far, that appears the case. Up to 168.50 early on. Excellent! But closing share price as usual is more important than intraday action. Will re-invest dividend next week, then onwards & upwards as we go into 2015, with the usual blips."
The user added: "Up to 172.80. Cracking! Market obviously loves MRW's forward guidance with lower than expected debt, profit targets to be met despite more one-off costs, good reception to 'more & match', online, growth in C stores & dividend also appears to be intact. "
'Special A Gent' sold out to make a 13p profit after the news.
'Sportgillyboat' said: "MRW think they are 'on track' with their recovery programme, and there are some reasons, with the eye of faith, to share some of Daltons optimism. But check the chart over the last 12 months lads; ouch. There is obviously a significant amount of doubt that sales, margins and market share can be clawed back to the glory days, at least anytime soon. Morrison's erstwhile competitors have joined them in a 12-month free-fall; face a similar existential threat; and will doubtless have competing recovery plans of their own. It's far from a done deal that the future is rosy for MRW.
"The reason for all the Supermarket malaise? German discounters. So it has to be a significant news item (within the retail genre) that the first Netto in a joint venture with Sainsbury's (SBRY) has opened today. There would obviously be a news crew and reporter to that one. So it is entirely sensible that they covered both supermarket based news items in the one piece. Some might be surprised how quickly interest in the subtlety of business models of the big supermarket chains disappears away from the MRW, SBRY and TSCO bulletin boards.
"I'm down 40% on MRW; so this is all a disappointment for me too. …The economy hasn't helped; but the big theme is that German discounters are pushing hard with lots of new stores; they've shaken up the cosy little cartel that the big 4 shared with savage under pricing, and they've taken chunks out of the big 4 market share (especially MRW). It's not certain the pendulum will swing back again."
This article is for information and discussion purposes only and does not form a recommendation to invest or otherwise. The value of an investment may fall. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment adviser.