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Morrisons: trading statement

Like-for-like sales growth was strong at 4.4% as a result of the conversion of former Sainsbury stores to the Morrison format. With the conversions complete the sector out-performance is likely to cease, and growth is likely to be fairly low: like-for-like sales in the original Morrisons chain fell a worrying 2.9% (excluding fuel revenues which were high as a result of high oil prices).

Although growth will slow Morrisons is now likely to be able to focus more on increasing efficiency now that the merger related work (especially format conversions) are behind it. We would therefore expect above sector norm profit growth to continue beyond 2006.

Morrisons is far from cheap with a PE of 28× and an EV/EBITDA of 10× at 194p. Although it has better growth prospects than the sector, bringing this PE down to reasonable levels will require this to be very sustainable.