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WM Morrison’s shares are trading at close to their highest point since December 2013. Investors are becoming more enthusiastic about the efforts of Morrison’s chief executive, David Potts and his team, who are making the supermarket chain more competitive, as it faces threats from online options and the dreaded discount providers.

Morrison’s results: another special dividend?

Morrison’s is due to announce its interim results on Thursday. Investors will be looking at like-for-like sales growth: Q1 came in at 3.6% which was the best number for a number of years and represents the 10th straight quarter of year-on-year growth. Shore Capital says it expects Morrison’s results to report a 5% increase in its like-for-like sales for the second quarter, despite the ongoing supermarket price war.

For the full year analysts will be looking for an increase in pre-tax profits of around 11% from Morrison’s results, which is regarded as a reasonable benchmark for the first half of the year. Morrison’s made £177 million a year ago.

Morrison paid out a special dividend of 4p/share last year, so investors will be looking for evidence or some more sugar coating this time: analysts also want to see a 14% increase in the ordinary distribution. Last year Morrison’s paid 1.66p/share.

Net debt has been reduced: the supermarket chain’s management team has done well to reduce this below £1 billion and CEO Potts says that he is targeting a further reduction this year. Morrison is generating plenty of cash at the moment and in June this year spent £262.2 million buying back some of its bonds. This helped to cut debt by over £230 million as well as slash its interest repayments bill.

Investors will also be keeping an eye out for any comments on the potential launch of  a second online distribution centre with Ocado and whether this will be contributing further benefits to Morrison’s share price. There ought also to be details in the Morrison’s results on the roll-out of the wholesale venture with McColl. Its original goal was to open 25 sites and boost sales to an annual run-rate of £700 million, but some analysts now think that number could be beaten.

The Armchair Trader says:

Supermarkets remain a popular investment, but the sector is going through an interesting period of challenging circumstances, with both online shopping and discount networks providing some serious challenges to the big names. Investors have been hoping that the hot weather over the summer will have encouraged shoppers to load up on more food and goods, but evidence currently points to them heading for the beer gardens instead.

Please note this article does not constitute investment advice. Investors are encouraged to do their own research beforehand or consult a professional advisor.

Stuart Fieldhouse

Stuart Fieldhouse

Stuart Fieldhouse has spent 25 years in journalism and marketing, including as a wealth management editor for the Financial Times group, covering capital markets and international private banking, and as an investment banking correspondent for Euromoney in Hong Kong. He was the founder editor of The Hedge Fund Journal.

Stuart has worked at CMC Markets, supporting the re-launch of its global financial spread betting and CFD trading platforms. He is also the author of two books on trading, published by Financial Times Pearson. Based in The Armchair Trader’s London office, Stuart continues to advise fund managers, private banks, family offices and other financial institutions.

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