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AJ Bell Youinvest Breaking the Mould – Morrison full-year results 2020

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The Coronavirus outbreak and its effects are likely to remain centre stage so far as wider market sentiment in concerned in the week ahead, although investors will also get the chance to mull over the policy response from both Governments and central banks The US Federal Reserve is due to release its latest interest rate decision on Wednesday 18 March and the Bank of Japan will make an announcement on the 19th

The US central bank has already, acted, cutting interest rates by half-a-percentage point to 125% on 2 March, while the Japanese have been dropping heavy hints about more Quantitative Easing (QE) Further action is therefore possible, especially in the USA, where the CME Fedwatch service shows that investors believe another cut is certain next week and the only issue is how big – one quarter of a point, half or even three quarters, all the way down to 05% We can see the trajectory of US monetary policy here over the past decade, in terms of both the headline Fed funds rate and also the size of the Federal Reserve’s balance sheet, as a measure of its QE programme: Global share prices have yet to stabilise in the wake of the 50 basis point cut earlier this month and the Fed won’t want to do anything that smacks of panic

Nor will it want to be seen to be behind the curve, so chair Jay Powell has a tricky balancing act, especially as markets are increasingly asking four questions of Fed policy: One, is it being driven by politics or economics? President Trump is screaming for more cuts, although Mr Powell always flatly denies this is a consideration, even though this is an election year Two, if policy is being driven by economics, is the Fed focusing on the real economy or the financial markets? You would hope the former, but the Fed is developing a habit of sticking its hand in its pocket every time the US stock market wobbles, which does raise issues of moral hazard and the risk of market bubbles Three, if policy is being driven by concerns about the real economy, will a rate cut really help? It won’t make someone get on a flight from Miami to Milan if they are frightened of the virus, that’s for sure And four, is the Fed leaving itself with enough ammunition for when the next recession comes? And if not, what can it do then – the likely options being negative interest rates, more QE and then helicopter money Japan has less room for manoeuvre as its headline rate is already minus 01% and the Bank of Japan’s balance sheet already equates to 100% of GDP compared to the US, there the Fed’s assets represent around 25% of GDP

That might not stop governor Haruhiko Kuroda taking action though In terms of company news, a handful of FTSE 100 firms are due to release interim or full-year results or host an analysts’ meeting and a lot more mid-and-small cap companies are scheduled to do so Reports which prove particularly informative include those due from the following: Ferguson, Antofagasta and TI Fluid Systems on Tuesday 17th March British American Tobacco and Ferrexpo on the 18th Next and OneSavings Bank on the 19th And finally JD Wetherspoon on Friday 20th March But for me the stock that is perhaps most capable of causing a fuss in the week ahead is Morrison The grocer is scheduled to report its full-year results on Wednesday 17th March As we can see here, the shares have struggled over the past 12 months and the Bradford-headquartered company briefly found itself on the fringes of the relegation zone from the FTSE 100 ahead of the latest quarterly reshuffle earlier this month

Weak consumer confidence may be one reason for the slide, concerns over the transition talks between the UK and EU and how they could terms of tariffs, costs and supply chains could be another but the real issue may be competition The latest onthly UK grocery market survey from consultants Kantar Worldpanel revealed that Morrisons had lost market share again in the three months to February, down to 102% from 104% a year ago The big gainers, yet again, were Aldi and Lidl and their relentless assault continues – Tesco has just announced a new range of price cuts designed to take on the discounters, whose combined market share now exceeds that of Morrison by 3

5 percentage points All of that means analysts and investors will look to three key sets of figures when the full-year results are released The first is like-for-like sales Morrisons had put together a string of 14 consecutive quarters of like-for-like sales growth, excluding fuel and VAT but that has come to an end Sales in the third quarter dropped by 1

2% and the Christmas trading update for the 22 weeks to January 5th fell by 17% Let’s see how the fourth quarter finished The second is pre-tax profit For the full year analysts are looking for a 3% increase to £409 million, although that is down from £421 million a few months back

Just in case Morrison’s gives any steer for the year to January 2021, analysts are 6% advance in pre-tax profit to £433 million The third is the dividend Morrisons paid out 126p a share last year, including 6p in special dividends For the whole of this current year analysts are looking for a three-and-a-half percent increase in the ordinary distribution to 8

84p a share Morrisons also paid out a 2p a share special at the interim stage so investors will be looking to see the grocer tops that up too Besides those headlines, watch out for progress on the operational targets that chief executive David Potts laid out alongside March’s full-year results; A drive toward £1 billion in annualised wholesale revenues, via an expansion of the supply deal with McColl’s, up from £700 million last year Further progress toward to the target of £75 to £125 million of incremental profit from wholesale, services and online, up from £54 million last year Further positive cash flow to keep debt low Net debt ended the first half at year at £24 billion, including £1

4 billion of leases Thank you for watching and I look forward to seeing you next time

Source: Youtube

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