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Wednesday, June 3, 2015

Morrisons up 3% as it keeps FTSE 100 place, while markets await Greek deal

Investors hopeful ahead of key meetings between Greece and its creditorsWith markets moving higher - albeit nervously - on hopes of a Greek deal, Morrisons was celebrating retaining its place in the FTSE 100.The supermarket group’s shares moved higher on Tuesday after better than expected sales figures as shown by the latest Kantar Worldpanel report. That was enough to save it from relegation to the FTSE 250 - something which had looked likely as late as Monday night - and its shares jumped another 5.6p to 178.1p. Our neutral rating on Melrose over the past year or so reflected our view that the next deal was not imminent, and therefore that mixed end-market trends would limit performance. However, while the next deal may still not be imminent, our sector analysis highlights the benefits of margin improvement in a slow-growth environment. This is combined with reduced trading risk in our view.Melrose operates a buy, improve, sell model and is looking for its next £1bn-£3bn deal – with the target being to at least double shareholder equity on any deal. We can’t predict the exact timing of the next Melrose deal, but history suggests that management can deliver. They have improved margins by 600-700 basis points within 4 years on their last two deals. We see limited other self-help opportunities in our wider sector coverage group and it is the repeating frequency of self-help at Melrose that we find attractive. Continue reading...


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