If you feel that mortality rates are going to increase generally, then betting on the stock market could make you a lot of money if you invest in shares of companies that support massive pension schemes. I think that I am right in saying that if the surplus gets large enough, the company can claim it back cant they?
Yes unlike many in the FTSE 100 MRW can boast a pension surplus. The negative as perceived by Kingham is the absolute level of the liabilities is larger than he considers safe and is explained below.
(I missed a link at the time of the initial posting of the lengthy explanation he gave at the time when he sold MRW in July 2017. https://www.ukvalueinvestor.com/2017/07/selling-morrisons.html/
Kingham analysis of MRW pension situation
Pension liabilities are finally getting the respect they deserve from investors, largely due to high profile events such as the collapse of Carillion.
Personally I look at a companys total pension liabilities, rather than just the deficit or surplus.
Thats because a 10% surplus today can easily become a 10% deficit five years down the line, and a 10% deficit on a big total pension liability is much more dangerous than a 10% deficit on a small total pension liability.
If the total pension liabilities are more than ten-times the companys recent average profits, thats usually a red flag for me. A 10% deficit in such a large pension scheme would be equal to an entire years profits, and that could be a serious drag on a companys financial flexibility.
In Morrisons case, it has total pension liabilities of £4.3 billion, which gives it a pension to profit ratio of 12.6.
Thats above my 10x pension ratio limit, so in my opinion Morrisons defined benefit pension scheme is a potentially serious risk to the companys health.
Having said that, the fund currently has quite a large surplus of assets over liabilities, to the tune of £600 million. Thats a 13% surplus, so it would take some very bad investment decisions for the scheme to turn from such a big surplus to a dangerous deficit.
The above link is for premium subscribers but points out that the drop in bank debt to less than £1bn coupled with a pension surplus means that Morries can hunker down for a long fight with the discounters as well as the majors.
Indeed on my last visit to Morries I noticed they have just introduced a range of low cost items at prices that will make the discounters eyes water!
The Torygraph also point out that sales data from Kantar to March 25 put Morries best out of the big four supermarkets on a one and two year view. It said that the EPS of 13p covered the 6.08p divi more than twice over which suggests the payment is sustainable and further debt reduction may mean further special divis.
They have strong asset backing with fixed assets of £7.3bn compared to a market value of £5.3bn, bank debt of £973m and a pension surplus of £594m.
Further to the recent Bernstein comments below the company does not fit (net debt...zero) the profile of a company where you would want to be short not least since you will have to pay out for all those divis and specials forecast.
Retail is still hyper competitive but the self-inflicted wounds under the previous regime which first attracted the hedge hyenas have stopped.
"....lowest gearing in the sector.
Adjusting for leases its net debt was at just twice operating earnings and if you credited the £600m pension asset then its net debt was zero, the analysts also said.
Hence the analysts' projection for the firm to ramp up its pay-out ratio from 83% last year to 100% over the next few years.
On Bernstein's estimates, Morrisons was set to see its dividend yield rise to 6.3% next year, followed by growth of 7.0%, 7.4% and 9.0% in successive years."
For the first time in years, apparently... edited highlights below.
FWIW I agree with them... they have been quietly delivering for some time now, and with a number of stand-out advantages over the quoted peer group.
"MRW is a perennial underdog in our sector, unloved by the sell-side but with best long term historical TSR and a favourite of value investors. We think it makes for great income stock...
We expect them to take it [payout ratio including "specials", now 83%] up to 100% for the next few years. Even with higher pay-outs, they are still deleveraging, providing plenty of downside protection. That means divi yield of 6.3% next year, followed by 7.0%, 7.4% and 9.0%...
Earnings are steadily being revised upward. That has actually been Morrisons' fate for the last 20 years: it is the only stock where sell-siders systematically upgrade earnings. It is the underdog of food retail, where execution beats strategy."
"True they have had a big wakeup call and in the case of Morrisons they have pulled out all the stops."
SAG -- They have indeed, but I think it goes far beyond that - in the old days the margin on the business was much higher.
I think that's changed for ever - it's not just a wake up call it's a tacit realisation that the competition has grown, is growing and will continue to grow. Aldi and Lidl are still growing at double digit rates despite many suggesting that it's tail off - it's been going on for years.
Bill - I did my back in m8 hopping over the fence - so I'm going to buy some of MRW's excellent produce next time I fall out of the car -- you see I do care about your shareholding.
On a more realistic front, and despite the healthier bottom line, if the top line continues to be challenged the bottom usually follows -- I recall an old northern saying regarding the entrance of a portly person into a room -- "ere's me ed, me arxe is on it's way"
I think a fair price for Morrisons is closer to a P/E of about 10-12 -- so some way to go yet.
Fully agree with yuor comments.
This is not a company to hold and sit and watch the value grow.
Typical trading range has been below £2.00 up to £2.65.
Cannot see the SP exceeding the upper range in the short term.
In hindshight I bought too soon as todays SP clearly show.
I have both BP and RDSB dividends paying out at end of this month.
If the SP remains at or below todays price when I recieve said dividends will consider another buy for the short term.
MRW ex-divi date is not until May therefore between now and ex-divi date I am expeting the SP to rise more than the value of the MRW divi, which would then make it a sell from me.
Good luck with your investing.
I agree some useful comments and whilst i like this company and have held historically the forward PE of 17+ surprised me to be honest. Its a good company well run but as a pure 'investment' can it grow profits and push its share price on from 17x......i doubt very much that it can meaning at best the price will go sideways for a while at best.
If you're in at 170p average then an effective PE of 14.5 looks obviously a far better starting point!
Hi Bill and Games
Some excellent comments and can fully related to the concerns regarding to the Aldi Lidl challenge.
But with regards to Morrison, Tesco, Sainsbury, Asda. the big four losing customers. True they have had a big wakeup call and in the case of Morrisons they have pulled out all the stops.
How about looking at established Aldis and Lidls and look at the empty shelves? Why when you go into Aldi stores there are empty shelves, could be many, many more customers are using them, or alternatively Aldis etc! Could it be? That the companies are now having logistic problems.
There are many more Aldi stores, in my city they started with one, now there are five. Big logistical problem. Stores are small in relation to the big 4 store setup. They do not carry the variety of produces that the big 4 do. Some Aldi stores are so small they cannot carry their full range of produces and have Special buy quick turn round products selling to free space within the store. Aldis in the early days claimed that they could sell a product before they had paid the supplier. Aldis relies upon quick turnover and restocking so logistics into the future could be a problem. More stores the bigger the problem, increased costs, so into the future, perhaps maybe not as cheap as they are now. More stores more employees and so on.
I believe Morrison are well placed to compete with the likes of Aldi and co and perhaps the small British style small stores will be the ones to fall by the wayside.
"Decline is probably the wrong word though, it's probably more appropriate to use the words "over" and "saturated"..."
Yes, Games, the underlying industry is clearly not in decline - people are still buying food, at a decent clip, and will continue so to do.
But as to where they buy that food.... the Germans are clearly not going away and will continue to take market share, albeit at a reduced rate, most likely. So, on average, the other incumbent players will lose more share, and all will face ongoing pressures on the "top line", of core grocery sales and volumes.
However, as I've argued before, what happens on the top line will not necessarily by mirrored on the bottom line... Having originally underestimated the German advance, we're now seeing multiple initiatives, which are transforming the way they do business, and the cost of it - and at an accelerating rate. Most "big" players are radically overhauling their cost structures, in management and other areas, with sizeable savings... we're seeing a concerted move into Wholesale (led by Tesco and now MRW)... we've seen synergistic expansion into complimentary non-grocery areas (SBRY and Argos).
I think we'll see a lot of more of this... again, I draw the parallel with the widespread (and still ongoing) shake-up in the airline industry, prompted originally by the impudence of the "no frills" discounters - in the end, it's not quite a case of "everyone wins", but the long-term benefits are still enjoyed fairly widely.
And then... I think we see more M&A and core consolidation. Of course, I still see a MRW/SBRY tie-up as the "obvious" end-game, but there are other ways it could play out. And you have to say, if there is anything such as an "attractive" target in this space, then MRW has to be it, with its strong balance sheet of (increasingly) modest debt, higher freehold asset base and big pension surplus, its vertically-integrated operating advantage and its evident recovery in core retailing discipline.
"Games - Just parked in Morrisons car park to nip over the bushes to get to Aldi because their car part is jam packed - lol !!"
You rascal, you... Maybe that's why MRW is still doing pretty well? 'Cos my (limited) experience of shopping at Lidl/Aldi suggests that while you may be willing and able to "nip over the bushes", a high proportion of their clientele are not, by dint of age and/or "nimbleness", and therefore probably resort to just waddling through the doors at MRW...
"One reason for this is that operating profit fell year-on-year, while all of the profit uplift came from lower financial charges; owing to the hard work Morrisons has put in to reducing its debt pile.... Morrisons operating margin slipped a little, from 2.9% to 2.7%, to suggest the competition remains as brutal as ever."
I don't actually buy this analysis - underlying operating profits were actually up y-o-y, albeit nothing spectacular (+3%) and the actual decline in underlying margin was 7 bps... okay, still a decline, but as near as flat as you can get, pretty much.
And I might add, before Games gets worked up about underlying vs reported profits - "underlying" operating profit was actually lower than reported profits for both of the year being reported and the previous period, not normally the way of these things!
For me, the results were remarkably solid, in pretty much every area - and certainly testament to management's assured control. But that said, they also reflect the fact that the industry backdrop remains challenging and is likely to stay that way.
I suspect the SP retrace owes more to a market very much in glass-half-empty mode, overly eager to pick out any minor negatives in a sea of generally good news, but also a feeling that these results perhaps indicate that we've now seen the best part of the restoration to health, with comparatively little still to go for.
I kind of agree with the latter, to some extent anyway... But I am happy enough holding on for now, with the SP slipping a bit below "fair value" and with prospects for further special dividends and/or similar looking pretty good going forward.
Interesting results and more so interesting fall in the SP.
I first bought into WM in Jul 2012 when the SP was £2.65, in hindshight perhaps not the right decission given the falls running into 2014 when the market took a dislike for the company.
Yes tough times for all the supermarkets.
Given what I had learnt about WM I chose to buck the trend and started trading in 2014 on the SP to lower my average price on mmy holding.
Did not want to sell out totally but the dividend was so low. I still had the confidence to know WM would fight back.
Ken Morrison knew how to run a business and although the money expertise didn't like him I had an opportunity to see into what the company were doing.
It's been a long time coming this recovery so although the SP's down this is a buy and hold for me.
Now holding at average price £1.70 so with yesterdays results I am expecting a 6.8% yield given the patience I have had to endure.
After three years of faultless execution during the Potts reign the SP is back exactly where it and Potts started. It's as if all the plus points of reduced debt, pension surplus, wholesale expansion count for absolutely nought. Saving us from the blunderful Dalton means nothing as far as the experts are concerned (it means rather a lot to shareholders of course). I suppose the retail landscape in the interim has become so toxic that standing still and not going under is considered a major coup.
Anyway those who buy for income can be satisfied with a further witty line of that Mould analysis. Best of all, the reduction in debt and the massive pension surplus, means Morrisons and its shareholders can hunker down for a long fight without having to worry about the interest bills it owes to its banks.
""" but investors may want to see earnings from the grocers core day-to-day operations rise before they take a view that the company really is seeing off the threat posed by the discounters Aldi and Lidl"""
Sadly, whilst I do like Morrisons, they have the annoying problem that Aldi and Lidl have a habit of building a unit next to Morrisons and the difference in the fullness of the adjacent car parks is plain to see.
Russ Mould, AJ Bell supplying some reasons for those having a negative take on today's results.
The combination of rising sales, a healthy jump in pre-tax profits, lower debt, an increased ordinary dividend and even a special dividend of 4p sounds very appealing, but investors are still declining to stock up on shares in Morrison. One reason for this is that operating profit fell year-on-year, while all of the profit uplift came from lower financial charges; owing to the hard work Morrisons has put in to reducing its debt pile.
Lower debt means less risk, and that is a good thing, but investors may want to see earnings from the grocers core day-to-day operations rise before they take a view that the company really is seeing off the threat posed by the discounters Aldi and Lidl, let alone more established rivals such as Tesco, Sainsbury and Asda. After all, Morrisons operating margin slipped a little, from 2.9% to 2.7%, to suggest the competition remains as brutal as ever."
""""Expanding on the reason for the special dividend, Potts and chairman Andrew Higginson said: "We are growing sales and profit, and expect that growth to continue to be meaningful and sustainable in the future. We are generating significant levels of free cash flow, which we also expect to sustain."""
Group like-for-like (LFL) sales(1) ex-fuel/ex-VAT up 2.8% (2016/17: 1.9%)
Revenue up 5.8% to £17.3bn (2016/17: £16.3bn)
UPBT(2) up 11.0% to £374m (2016/17: £337m), up 9.5% on a 52-week basis
Underlying EPS(2) up 12.2% to 12.19p (2016/17: 10.86p)
Reported PBT up 16.9% to £380m (2016/17: £325m)
Free cash flow(3) of £350m (2016/17: £670m)
Net debt reduced by £221m to £973m, below our £1bn year-end target
Net pension surplus of £594m (2016/17: £272m)
Return on capital employed increased to 7.7% (2016/17: 7.3%)
Final ordinary dividend of 4.43p, taking the full year ordinary dividend up 12.2%
to 6.09p (2016/17: 5.43p)
Special dividend of 4.00p, taking the full year total dividend up 85.8% to 10.09p
Our policy is for the ordinary annual dividend to be sustainable and covered around two times by underlying earnings per share. The final ordinary dividend will be 4.43p, bringing the ordinary dividend for the full year to 6.09p.
In addition to the final ordinary dividend, the Board is proposing a special dividend of 4.00p per share, taking the total dividend for the year to 10.09p, an increase of 85.8% on last year.
The principles of our capital allocation framework guide us to reinvest to deliver profitable growth and return surplus capital to shareholders. In recent years, we have made strong progress with the turnaround and our Fix, Rebuild and Grow strategy. While there is still much we plan to do, a new Morrisons is now emerging. We are growing sales and profit, and expect that growth to continue to be meaningful and sustainable in the future. We are generating significant levels of free cash flow, which we also expect to sustain. The special dividend reflects our good progress so far and our expectations for continued growth. Looking forward, we will retain a strong and flexible balance sheet. We will be guided each year by the principles of our capital allocation framework in assessing the uses of free cash flow.
Subject to shareholder approval at our 2018 AGM, both the final ordinary and special dividends of 4.43p and 4.00p per share respectively will be payable on 28 June 2018 to shareholders on the share register at the close of business on 25 May 2018.
"The chorus of supermarket watchers hopeful that LSE:TSCO:TescoÂ shares can finally return to the 250p level last seen in 2014 grew a little louder today.First up, Kantar Worldpanel's latest grocery market research showed Tesco and ..."
"Morrison (WM) (LSE:MRW)It's aways tempting to declare a lack of Interest when covering LSE:MRW:Morrison supermarket. In our little part of Argyll, the choice of supermarket is limited to one and, frankly, they can be less than efficient. What ..."
" MORRISON (WM) (LSE:MRW)Â It's aways tempting to declare a Lack of Interest when covering Morrison Supermarket. In our little part of Argyll, the choice of supermarket is limited to one and frankly, they can be less than efficient. What other ..."
Now at 9%. Just another 212 million shares to repurchase and they will have all gone. Every 1% equals about 23.5 million shares. If they don't that's another 212 million divi payments due, guess about 4.15p per share. Are any of them making money on this? Not that any of the long term holders are either, but shorter pain is some compensation.
Publicly disclosed short positions now at 9.87%. MRW has fallen out of the top 10 hall of shame (no.11). How can a seemingly financially robust outfit like this have been just behind CLLN for much of the last two years.
The hedgies seem to be giving up in slow motion. There will be another divi payment along soon enough, plus their loan fees etc.
"From LSE:TSCO:Tesco's recovery to the peak trading test of Argos shops in LSE:SBRY:Sainsbury's, there's plenty riding on updates from the big food retailers in the coming days.Sales in festive week can be double normal levels, but the Christmas ..."
I'm heading to their Weybridge store this morning to buy some spirts
as Christmas presents. It may be my lack of technical literacy, but there
did not appear to be a click and collect option, so unable to check product availability.
I fail to see what DIRECT reference this (or your previous 2 messages) has Wm. Morrison Supermarkets - or am I missing something. I know you mention 'shorters' targeting M & S etc but I think this sort of message should not be on a specific company message board other than those mentioned.
I read this board for COMPANY SPECIFIC comments.
Incidentally, I think Morrison's have got a super team on board right now, and I am keeping my holding for a rise towards 300p by about Jan. 2019 (14 months time) + dividends getting back towards their level of 2 - 3 years ago
When the short and distort maneuver succeeds, investors who initially bought stock at higher prices sell at low prices because of their mistaken belief that the stock is worthless, caused by an effective distortion campaign. At the same time, the S&Ds cover at low prices and lock in their gains.
Right after prominent bankruptcies such as Enron in 2001 or Nortel in 2009, investors could be more susceptible to this type of manipulation than during prosperous periods such as the 1990s in the U.S. During downturns, the first appearance of impropriety could cause investors to run for the hills much easier. As a result, many innocent, legitimate and growing companies could get burned, and investors along with them. (To learn about how you can profit when everyone else is heading for cover, read Profit From Panic Selling.)
How to Identify and Prevent S&D
1.Do not believe everything you read - verify the facts.
2.Do your own due diligence and discuss it with your broker.
3.Hypothecate your stock - take it out of its street name to prevent the short sellers from borrowing and selling it. (Learn more about doing your own due diligence in our related article, Due Diligence In 10 Easy Steps)
The best way to protect yourself is to do your own research. Many stocks with great potential are ignored by Wall Street. By doing your own homework you should feel much more secure in your decisions. And, even if the S&Ds attack your stock, you will be better able to detect their distortions and be less likely to fall prey to them by selling the stock at a loss.
Holiday Shopping Still Dominates
The busiest period for brick-and-mortar stores is still the Christmas holiday shopping season. This stretch of time between Thanksgiving and the end of the calendar year has become ever more competitive, with brick-and-mortar retailers increasing hours and running near-constant promotions. In recent years, some large retailers have even opened stores on Thanksgiving Day and Christmas Day, which resulted in a fair amount of backlash from customers and employees.
But the picture has not been perfect for online retailers over the holidays in the last few years, either. Procrastinating shoppers who waited until the last minute to order holiday gifts online overwhelmed the package delivery companies that online retailers rely on, resulting in packages delivered late or after the holidays.
So there are plenty of pros and cons for both brick-and-mortar and online stores when it comes to retail's busiest shopping period.
But that's not the end of the story. Amazon.com is now opening its own bricks and mortar stores. they have learned that a significant portion of the population will only by in s store and so the once giant of online is now a back and mortar retailer.
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