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Morrison’s H1 results
Although Morrison's sales growth for the half year is largely the result of the acquisition of Safeway. There is little real underlying growth with like-for-like sales growth largely due to higher fuel prices. Excluding fuel like-for-like sales rose just 1.7% - i.e. broadly in line with inflation.
Some growth will be coming from the conversion of Safeway stores to the Morrison format. However on the numbers available at the moment it is not altogether clear how much each driver is contributing. The next half year will be more useful as the comparative period will be post the acquisition.
The cost of the conversations is pushing Safeway into a loss and absorbing all the cash Morrison generates. Stripping out the exceptionals, the EPS for the half year was 1.4p.
Morrison looks expensive in PE terms at 22× next year's earnings but the EV/EBITDA looks more reasonable at 9×. There should be good growth beyond next year as acquisition and conversion expenses fade - and as the company can re-focus on managing the business rather than the merger.