Equity roundup: Aston Martin and Morrison

Equities

Morrison’s lean Christmas 

It was a lean Christmas at the Morrison household but the grocer managed to stick to profit forecasts and is upbeat about the year ahead. Group like-for-like sales excluding fuel were down 1.7% in the 22 weeks to Jan 5th, with retail responsible for all of this decline whilst wholesale was flat. Total sales fell 1.8% over the period – although it’s interesting that it’s chosen not provide more specifics on the performance over the key Christmas period. 

Q3 was also soft with group LFL –1.2%, with wholesale contributing –0.1 percentage point to the decline and retail adding –1.1%. Management described trading conditions as exceptionally challenging. Aldi’s numbers support the case that consumers tightened their belts over the festive period a little more than expected. Nevertheless, decent cost control means 2019/20 profit before tax and one-off items is still expected to be within the current range of analysts’ forecasts. 

So, first out the gate among the big four listed grocers and Morrisons passes the test – trading was tough and for sure they are leaking market share to the discounters, whilst the election in December certainly had an impact.

But MRW hit forecasts and shares have bounced 3.5% as a result following a bit of selling on Monday in the wake of the Aldi numbers. The read across has been felt in the sector with TSCO up a touch, SBRY also doing well. Marks and Spencer shares have jumped 4% as Berenberg raised the stock to buy from sell.

Kantar data has also crossed the wires and confirm it was a tough old patch for supermarkets. Tesco sales -1.5%, SBRY -0.7%, Asda -2.2%, MRW -2.9%. Discounters continue to gain ground.

Nielsen numbers meanwhile indicate grocers endured the worst Christmas period since 2014. Again Sainsbury’s looks to have held up better with sales -0.4% over the 12 weeks to Dec 28th, while Tesco -0.9% and Morrisons -.2.5%.

So far it seems Christmas was a bit lean for supermarkets and there was not the hoped-for big post-election splurge, but perhaps it was not quite as bad as feared.

Aston Martin: Stroll on 

Profits warnings never come alone – they usually come along like buses in batches. True to form, following a warning last summer and sailing pretty close to one in November, Aston Martin is warning profits will be between £130m and £140m, about half the £247m last year. Shares dropped 13% to £4.53.

The numbers are pretty horrid, albeit retail sales rose 12% (heavy discounting when buyers can see multiple models on the forecourt is impossible to avoid). 

  • Core wholesales declined 7% year-on-year to 5,809 
  • Year-end cash balance was £107m, giving expected net debt and leverage ranges of £875m-£885m and 6.2-6.8x respectively.

That net debt figure is a major concern. The only good news is the DBX order book has risen to 1,800 which means Aston can unlock an additional $100m in 2022 notes. This is a drop in the ocean though and for sure Aston needs to raise cash in some way. The bond market looks unpalatable but even an equity raise could prove tricky. The rationale to go private is impossible to resist – the brand still has the cache to make it appealing. Stroll on.