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Morrisons recent miserable run has continued as ratings agency Moody’s downgrades the supermarket’s debt following the 35% decline in pre-tax profits reported by the group last week.

It comes after analysts at HSBC issued a note cutting its profit forecasts for the retailer and warning that any recovery lead by CEO David Potts was not likely to come quickly.

Moody’s, which downgraded Tesco’s to ‘junk’ status earlier this year, said the decision to push Morrisons’ long-term rating from Baa2 to Baa3 (just one step above a ‘not prime’ rating) was primarily driven by the collapse in profits in the recent half year and the previous full financial year when the bottom line sank by 52%.

The agency added the decline reflected a further decrease in like-for-like sales, as well as investments to keep its prices competitive amid pressure from the discounters and traditional rivals.

Moody’s also downgraded Morrisons’ short-term ratings to Prime-3 from Prime-2.

“Today’s rating action primarily reflects the impact of structural changes in the UK grocery sector, particularly the ongoing shift of consumers to discounters, convenience stores and online retailers, which has caused Morrisons’ earnings to contract beyond our previous expectations,” said Sven Reinke, senior credit officer at Moody’s and lead analyst for Morrisons.

“While Morrisons has made substantial progress in reducing its debt, we expect the company’s credit metrics to remain outside the requirements of a Baa2 rating for an extended period of time.”

He added that Morrisons’ decision to dispose of the loss-making convenience store network was likely to help stabilise operating profitability. “However, it also cements Morrison’s reliance on supermarket sales – the most challenged channel in the UK grocery market, which is structurally declining.”

However, Moody’s outlook on the ratings is stable which the firm said reflected its views that despite the fact Morrisons continued to face challenges from structural changes in the UK grocery sector, its operating performance was likely to stabilise in the second half of FY2015/16.

Shares in Morrisons opened 0.4% up on yesterday’s close at 158p. The stock has plunged more than 10% since last Thursday’s results and the HSBC downgrade to profits forecasts.

Morning update

Eagle Eye, the technology company which validates and redeems digital promotions in real-time for the grocery, retail and hospitality industries, has increased revenues by 165% to £4.9m in the year ended 30 June. The company said the rise was driven by a wave of more than 60 new customer and brand wins, including major contracts with Sainsbury’s and Asda to use its technology in their UK stores.

Yesterday in the City

A quiet day in the City with little movement of note as the FTSE 100 edged 0.9% higher to 6,137.6 points shrugging off further fall by mining giant Glencore and inflation falling back to 0% in August.

Ocado (OCDO) ended trading just 0.1% above Monday’s close at 316.2p despite gains of more than 2% in the morning following the latest Q3 update. The online retailer reported higher-than expected double-digit sales growth but remained quiet on the highly anticipated news of its first agreement with an international partner.

Morrisons (MRW) slowed the rot but still finished the day 0.3% down at 157.4p. The stock is more than 10% down since last week’s half-year results and took a fresh hit on Monday after a HSBC analyst note downgraded profit forecasts and warned on the long, hard road ahead.

Tesco (TSCO) also fell 0.8% to 177p, as did Sainsbury’s, down 0.4% to 228.6p. Other fallers of note included Booker (BOK), down 3.6% to 173.6p, and Poundland (PLND), down 2.3% to 320.2p as rival Poundworld flexes its muscles with record results yesterday.