As Morrisons belatedly launches an online shopping service, its shares are also playing catch-up.
Following Thursday's surprise warning, the supermarket lost around 8% but they have recovered a small part of that decline, adding 2p or nearly 1% to 236.5p.
Analysts at Cantor Fitzgerald meanwhile have suggested the company could be broken up. Cantor's Mike Dennis moved from sell to buy, saying:
The rationale for this is: 1) net asset value per share is 230p or 98% of the current share price and we see Morrisons as being vulnerable to a break up by outside interests.
2) If the Competition Commission allowed it we believe that the company assets could be sold off and that the property review in March could show that 300 Morrisons stores are worth £25m each or £7.5bn equal to 95% of the current enterprise value.
3) Morrisons would still have 195 25,000 square foot stores, 100 convenience stores, Kiddicare and a manufacturing operation probably worth over £3bn. Morrisons would again become a small regional supermarket group possibly run by previous management or the return of Ken Morrison.
4) Current store margins excluding fuel are probably close to 5.6% despite reported trading margins being closer to 4.5% this year, or £785m, which still shows that Morrisons has a very profitable store operation. On this basis, even with another £60m of additional costs linked with on-line, Morrisons could maintain two times cover on a 13p dividend in 2014/15 which means that the yield on the shares is 5.6%.
5) Morrisons 2015 estimated enterprise value/earnings is now 9.9 times, not totally distressed, but also with limited downside risk given food price inflation is 2%, new space is still contributing 2%-3% and the consumer has marginally improving household income via rising employment. We believe Morrisons can achieve £700m plus pretax profit in 2014/15 and 25p plus of earnings per share so supporting a held dividend of 13p.
Tesco, however, has lost 3.6p to 320.75p as HSBC, Deutsche Bank and Barclays all cut their price target following the group's festive trading update.
