Morrisons shares still offer fresh choice for shorters

Morrisons has achieved the UK retail equivalent of a blockbuster Christmas.

Its key like-for-like sales for the 9 weeks to 3rd January, released on Tuesday, were up all of 0.2% year-on-year.

Its stock jumped 12%-plus early on, instantly marking its best day for 11 years.

The pattern for this type of circumstance is well established.

Expectations for major supermarket Christmas grocery sales are so dire—with a number of exceptions, M&S, being one of them—that any smidgeon of performance above is a win.

This begs the question of ‘why do investors keep falling for it’?

Well of course, they don’t.

The same relative basis which allows supermarkets to boast of beating the market trend forms part of the basis of their ‘investment’ case at the moment.

The inverted commas denote the fact that any such case is pretty depleted.

UK grocery names have lingered for months among the top five disclosed shorts among the FCA’s weekly data on shares borrowed for short selling.

• Sainsbury’s – 11.5%
• Morrisons – 10.6%
• Ocado – 11.3%

 

 

UK No.2 Kantars ahead

In other words, only the most stalwart of investors (such as large institutions) continue to see supermarkets as investable with conviction.

However, supermarket shares are deemed to be attractive for short-term speculation.

That speculation has to be unwound quickly in the event of good news less-bad-than-expected news, like this morning’s.

Traders should therefore add a further pinch of the salt they keep to hand for situations like Morrisons.

The fact MRW’s rivals’ shares were also strong as I wrote this—Tesco topped the FTSE 100 and Sainsbury’s wasn’t far behind—could also be read as expectation that their sales were strong too.

Perhaps even better than Morrisons’.

We’ll find out on Wednesday, for Sainsbury’s and Thursday for Tesco.

Meanwhile, latest independent supermarket data from Kantar Worldpanel out on Tuesday morning show Sainsbury’s kept its relative lead over the Big 4 in terms of sales growth in the 12 weeks to 3rd January.

Its total sales ‘rocketed’ 0.8% higher.

If that acceleration is reflected in the supermarket’s official update, it could wrong-foot pessimistic expectations like mine.

Consensus forecasts -0.7% on a like-for-like basis for Sainsbury’s during 15 weeks to 9th January.

The uncomfortable truth (for the established names) about who really won the Christmas price wars should be no surprise by now.

 

 

 

KANTAR WORLDPANEL MARKET SHARE DATA, JANUARY 2016

Please click image to enlarge

 

 

Too hard?

Am I being too harsh on Morrisons?

Its statement does after all represent its first period of positive underlying sales since 2012.

LFL sales were supposed to have fallen 2%, after sliding 2.6% in Q2, according to market forecasts.

Morrisons’ management also seems to have been emboldened by their winter performance.

MRW full-year 2015-16 underlying profit before tax guidance is now £295m-£310m.

The market had expected £306m vs. last full-year’s £345m.

True, £60m will be lopped off for revamp costs and store closures when Morrisons reports its year to the end of this month.

This does point a wizened finger to more optimism than before that the supermarket expects its myriad turnaround measures to start to take hold.

 

 

Thin rally

But the market, like me, shows signs of needing more convincing.

Tuesday’s trading on the daily chart looks as winnowed as I imagine morale among Morrisons’ ranks to be.

A thin, long candle shows failure to hold highs convincingly.

It corroborates other signatures of a dubious rally, such as the gap that opened between Monday’s close and Tuesday’s high.

The high-to-high range so far is a rather unlikely 13%.

Even if the gap isn’t filled in the near-term, profit-taking back to the 100-day moving average (light blue) seems more certain.

Especially as that would be backed by proximity to a 100% extension from December lows.

Sustainable stabilisation above the sturdier 200-day trend (blue) again, backed by a strong Fibonacci extension (161.8%), appears all but out of the question.

 

 

 

MORRISONS DAILY CHART

 

Please click image to enlarge