Morrisons and Greene King

“UK domestic stocks were back in fashion on Tuesday with supermarkets, engineers, banks, insurers and utilities all helping to give support to the FTSE 100. The blue chip index was up 0.5% to 6,847 with retailer Next topping the leaderboard. “The rise in UK stocks follows speculation that British and European officials might be discussing the possibility of extending Article 50 to give more time to negotiate the terms of Brexit. “Stocks in other parts of Europe also enjoyed a small rally including a 0.5% gain in the Paris Cac 40 index,’ says Russ Mould, Investment Director at AJ Bell.

Morrisons

“Today’s positive Christmas trading update from Morrisons is impressive when you consider it enjoyed such a bumper festive period last time around.

“Despite this representing a fourth consecutive Christmas of like-for-like sales growth, the market appears unconvinced. This is perhaps down to the supermarket’s retail business only providing a small proportion of the growth in the period and because overall, and despite a good contribution from the wholesale arm, sales were modestly behind expectations.

“Retail sales growth was down materially both quarter-on-quarter and year-on-year although Morrisons did hold its prices for ‘key Christmas items’, a sign that management are not prepared to make short-term decisions to flatter quarterly performance.

“The strong numbers reported by German discounter Aldi at the beginning of the week highlight the continuing challenge facing the established groceries firms.

“They need to decide whether to compete on price at the expense of margins, and the challenge of being price competitive may get even harder in the event of Brexit disruption.

“Since joining in 2015, chief executive David Potts has done a good job of turning around Morrisons’ fortunes but there still looks plenty to do to keep the business on course.”

Greene King

“It’s about time that Greene King served up a decent trading update, having disappointed on several occasions over the past year or two.

“Sales growth has accelerated in its managed pubs division over the past six weeks, helped by a good Christmas period. However, it is worth noting that the pub company had easy year-on-year comparative figures to beat. A year ago trading was hit by snow so mild weather this time round will have worked in Greene King’s favour.

“Chief executive Rooney Anand is now into his final run before stepping down in April. His successor will inherit a business which is ripe for shaking up, through such actions as selling assets, streamlining some of the brands and tidying up the estate to focus on the more profitable sites.

“As it stands, analysts don’t expect the business to grow pre-tax profit until the year ending April 2021.

“Despite positive factors in the latest trading update, Greene King looks like it is stuck in the mud in a sector that is at the mercy of fragile consumer spending. It will be hoping that Brexit doesn’t cause any major economic setbacks in the UK and that consumers don’t tighten their purse strings on discretionary spending.”

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