Supermarket falls after analysts says UK may no longer need the groupWith Tesco unveiling more details of its store closures, it was a feat for rival Morrisons to gain attention, but the supermarket group managed it.In an uncertain stock market Morrisons slumped 12.2p or 6% to 186.3p, the biggest faller in the leading index.Time has stood still for Morrisons for quite a while, in more than one way. If this is a market of winners and losers, then the stock market thinks Morrisons is on the right side of the divide. Reality will soon kick in: Morrisons’ consensus earnings expectation hasn’t moved for 10 months while management changes at Tesco and Sainsbury’s have resulted in the necessary downward revisions. The argument that ‘Dalton Phillips called it early with the right plan and therefore the consensus adjustments last March were sufficient’ doesn’t stack up.When the new Morrisons chief executive starts, he/she will find out that: 1. Morrisons doesn’t really know where it is headed; 2. Internal capability is 10 to 15 years behind and that takes time to fix; 3. Margin trough isn’t deep enough; We will have a déja-vu when Morrisons’ new ‘Dave’ (David?) cuts the dividend and the margin. The V-shaped margin recovery will at best become a wide U-shape. Let’s hope the new chief executive starts soon: every month there are 20 plus more hard discount stores to deal with. Morrisons is the only retailer who potentially may find out the UK has moved on and there is no more need for it.Over the past 5 years, InterContinental has generated 246% total returns versus the FTA-AllShare’s 61%. We believe that InterContinental’s re-rating has been driven in part by some stirring of the mud by activist investors, and from a European perspective, due to its significant exposure to North America (around 70% of EBITA). The stock is now trading at a premium to its European peers and most US hotel groups. In the short-to-medium term, with the US hotel cycle peak looming ever closer, we see little that can drive the rating meaningfully further. The upcoming January meeting of the Federal Reserve has given pause to European markets after the recent run up with fighting talk out of Athens adding some ‘Eurozone break-up’ jitters into the mix. The latest statement from the Fed should be a non-event for European markets that are being propelled higher by imminent ECB asset purchases but markets are on hold until the hurdle is cleared.A massive risk-off scenario across Europe because of the problems in Greece is definitely possible in the near future but for now it is being contained within Greece with Greek bank shares and Greek government bonds getting sold off heavily. We view this news as positive and expect the stock to react positively, as the share buyback should lead to earnings accretion. Given the company statements about target leverage range and given Experian’s strong free cash flow (currently 7% on our estimates for 2016), the company should be also able to target further capital return to shareholders in the coming years.If anything the result and guidance is a little disappointing because strong US truck order data and a sequential improvement in foreign exchange effects had prompted some near term optimism going into the results...there is a notable warning in the statement that Process Tec is seeing a licensing slowdown in China that is now expected to extend into 2015/16 and that its oil and gas petrochems business will likely be impacted by an investment decision hiatus caused by the lower oil price.Their rival Carpetright did them a favour [on Tuesday] by flagging up the manifold delights of “interest free credit”. We suspect that investors in ScS are more focused on what sort of dividend income they’re going to get out of ScS and on page 53 of the 180 page prospectus it says that the company is targeting a chunky 8% dividend yield for the year ending July 2015 (ie a 14p full-year dividend). That page also says that in the 23 weeks ended 3 January, sales order intake for the ScS store portfolio was up by 8.1% like for like and that the much-vaunted House of Fraser concessions are trading in line with expectations but are still in a loss in the start-up phase. Continue reading...
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