FTSE 100 hangs on above 5,000, Morrisons earns its stripes, and Restaurant Group anticipates major sales slump

“Despite the significant stimulus measures being announced across the globe, markets are failing to build on yesterday’s rally in the US with Asian stocks falling overnight and European markets in the red at the open. The FTSE 100 was at least materially above the 5,000 mark early on, down 3.4%,” says AJ Bell Investment Director Russ Mould.

“Ultimately no amount of cash or measures to mitigate the economic impact of the crash can tell investors what they want to know right now, which is when daily life will return to normal (or even a new normal).

“Perhaps some comfort can be taken from the fact that shares are seeing slightly smaller declines than have been witnessed earlier in this sell-off with a reduction in volatility probably the first step towards some measure of stabilisation.

“Brent crude oil prices are just about holding above $30 per barrel, but gold bugs will be disappointed to see continued pressure on the precious metal which is rapidly losing its defensive shine."

Morrisons

“Supermarket group Morrisons appears to be having a good crisis so far, responding impressively to the new demands on the business created by the coronavirus and accompanying restrictions on everyday life.

“The company is being proactive in protecting the health and finances of its employees and in seeking to keep the nation fed, aided by the fact it is a vertically integrated business with its own food production capacity.

“While there is no hint these measures are being taken for a commercial advantage, people may well remember how it acted when the outbreak is finally contained and this could increase and bolster brand awareness and loyalty.

“The numbers announced today have limited relevance given the dramatic events since the close of the period on 2 February, though it is reassuring to see they were broadly in line with expectations.

“Supermarkets will see a short-term sales bump from stockpiling, although they also have to ramp up delivery capacity and try and keep shelves stocked. Notably Morrisons saw like-for-like sales up 5% year-on-year in the first six weeks of its new financial year.

“In the longer term, with far fewer people eating out there will be a lasting increase in demand, which might even outlive the coronavirus.

“Nonetheless, and despite a reasonably robust looking financial position, the company has put special dividends on hold for the time being.

“There could still be significant supply chain issues for supermarkets to overcome in the months ahead but at least Morrisons appears to be going in with its eyes wide open.”

Restaurant Group

“The market has been fearing a sharp downturn in trading from Restaurant Group and an update confirms this has happened.

“The company is being very realistic about the severity of the problem, judging by its stark guidance for a further slump in sales. It is essentially saying that sales in its airport concessions will almost dry up in the second quarter of the year, and that its high street and retail park interests will take a big hit.

“Interestingly its shares shot up by nearly 14% on the news before quickly reversing, to trade nearly 6% down in the first half hour of the markets opening. Investors seem to be confused as to whether having new sales guidance is good news as it provides some sort of clarity, or whether it simply makes the company’s debt-related problems even worse.

“The leisure company was in turnaround mode until the pandemic struck. Having lost its focus a few years ago with poor service standards, just at the time competition was intensifying, Restaurant Group has been trying to bounce back by slimming down its core estate which includes Frankie & Benny’s and Chiquitos.

“It also made a brave move by buying Wagamama at what many people thought was a very high price. That put pressure on its borrowings, making it very vulnerable going into the new crisis. Like many businesses, Restaurant Group is now hoping its lenders will be lenient.

“Wagamama might see an increase in takeaway business via platforms such as Deliveroo what with households in lockdown mode, yet the rest of the company’s brands aren’t the type of eateries one might immediately desire when thinking about ordering food to be delivered to the home.

“The pub and restaurant sector has already suffered from rapid expansion in the casual dining space reaching saturation point a few years ago, triggering closures and price discounting. Now it is going through an even tougher time with customers effectively forced to stay away.”

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