Cube UK Report (11 May 2021) – Morrisons hints at cash returns

Cube UK Report (11 May 2021) – Morrisons hints at cash returns

Good morning, it’s Roland here with today’s report.

It’s a fairly quiet day for news today but I do want to look at the latest update from supermarket Morrisons. The Bradford-based group appears to be hinting at a possible increase in shareholder returns later this year.

I may also have a quick look at fashion group Joules, which has issued a(nother) strong update.

Elsewhere, the government has sold £1.1bn of shares in NatWest Group (formerly RBS) at 190p per share. This reduces the taxpayer’s holding from 59.8% to 54.8%. Welcome news for shareholders, but at this rate, it could take a while to return NWG to private hands.

Wm Morrison Supermarkets

  • Stock data should display here.
Market cap £4.4bn
RNS Q1 trading statement
Writer disclosure No position

Morrisons has reported a strong performance for the 14 weeks to 9 May. The numbers support my view that this business is in good shape and that the wider economy is now returning to normal:

  • Total sales +5.3% (including fuel)
  • Like-for-like sales +2.7% ex-fuel and +4.7% inc-fuel
  • Online sales +113%
  • Wholesale LFL +21%
  • On track for FY22 guidance, with pre-tax profit ahead of last year’s pro forma level and net debt/EBITDA down to 2019/20 levels.

What can we learn from this? 

Shoppers still appear to be choosing Morrisons for its food and other retail offerings. The group’s online and wholesale channels are also performing well.

Online sales through the retailer’s twin online offerings ( and Morrisons on Amazon) have doubled over the last year.

Wholesale is continuing to expand thanks to capital-light deals to supply McColl’s convenience stores and a growing number of garage forecourt convenience retailers. I’ve admired this strategy for a while and it continues to look good to me.

Food retail gets most of the headlines, but the biggest distorting factor in Morrison’s 2020/21 results related to fuel sales, which fell by as much as 69% during the first lockdown. This slump was paired with falling fuel prices as the oil market crashed. These factors left the group with expensive, unsold fuel stocks. This resulted in a £347m working capital outflow last year.

Reversing this cash outflow is key to the group’s promise to cut debt and rebuild free cash flow in 2021/22. Fuel sales are now said to be almost back at pre-pandemic levels and management are confident that the working capital outflows seen last year will unwind.

As a result, CEO David Potts has promised to “refresh our long-term capital allocations plans” this year. Details will be included with September’s interim results. To me, this suggests shareholders can expect share buybacks or more generous dividends. Personally, I’d hope for the latter. But the buyback religion is strong in modern markets, so I won’t hold my breath.

My view

I’ve been a fan of Morrisons for some time now. Today’s update hasn’t changed this view.

Mr Potts’ track record of delivery means that I’m comfortable with management guidance for improved cash flow and falling net debt this year. Historically, the dividend has historically been well-supported by free cash flow and I expect that to be true this year.

As an income investment, I think Morrisons looks attractive at current levels. The stock offers a prospective yield of 5%, with the potential for further returns.


  • Stock data should display here.
Market cap £288m
RNS Business & Trading update
Writer disclosure No position

This country lifestyle fashion group has been a strong performer in recent years. Today’s update tells us that results for the year to 31 May are expected to be “ahead of current analyst consensus expectations”. Usefully, the company also provides details of these expectations in the RNS.

Like Next, Joules is an example of a retailer that has a strong online business which is complemented by its stores. Sales on Joules websites are said to have risen by 50% year-to-date, against the comparable period (June 2019-April 2020, I guess).

Early indications suggest that the company’s acquisition of garden lifestyle firm Garden Trading  has also been successful — sales are said to have risen by 85% against the comparable (pre-acquisition) period.

Joules’ balance sheet looks fine to me and I was interested to see the company secure an ESG-linked financing facility recently. This appears to provide slightly cheaper financing if the company hits specific ESG targets.

My view

This isn’t a sector where I tend to invest personally. But I’ve been consistently impressed by Joules’ performance in recent years. Perhaps more upmarket retailers (Hotel Chocolat is another example) are finding it easier to adapt to a hybrid online/store model.

However, Joules clothing seems expensive to me and I suspect its shares are too. Ahead of today’s update, JOUL was trading on around 40 times 2021 forecast earnings, falling to 29x in FY22.

We don’t yet know how much of an earnings beat Joules will generate this year. But the shares are up by just 4% as I write. To me, this suggests that the market isn’t willing to support a higher valuation multiple for the company. At least, not yet.

That’s all for today, thanks for reading. I should be back with you on Thursday, all being well.




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