We’ve been waiting for a re-rating of the supermarkets for over a year.
But it’s taken an opportunistic takeover bid for Morrisons to wake investors up to the value in Britain’s supermarkets.
You would think institutional investors might like a rock solid, hugely cash generative and profitable defensive play. And in this crisis not only have supermarket sales soared, the aftermath for grocery looks strong – if your stores are in the right places – given the societal changes to home working patterns.
But the share prices of Morrisons, along with Tesco and Sainsbury’s, have pretty much flatlined since the pandemic, as institutional investors have opted for all things pureplay online, including lossmaking Deliveroo and Getir – valued at £4.6bn and £5.3bn respectively, versus Morrisons’ £4.3bn (on Friday before the £5.5bn bid came to light).
The City has also ignored the fact that Morrisons has increased delivery slots from 100,000 to 650,000 in the past year (with digital sales up 113% in the first quarter to 9 May), with home delivery now available from 447 stores (versus 38 stores in March 2020). It is treating new store openings as “a Trojan horse” for online sales, according to CEO David Potts, which suggests online is no longer viewed as a loss-leader.
Yet the reality is that Morrisons will surely now be seized out of public ownership, with the rich pickings from its store estate likely shared among US venture capitalists CD&R, who are expected to up their offer from 230p to 250-260p to seal the deal.
But there’s a question mark hanging over the Morrisons plan – as indeed there is over Asda, another venture capital play in the works: succession planning.
Who will lead Morrisons? Potts is 64. Chairman Andy Higginson is 63. There was already talk of retirement. With a huge payday they will be even less inclined to stay for what will surely be a five-year project.
That’s in strong contrast with the situation CD&R inherited when it bought B&M, signing up the brilliant Arora brothers into the bargain. (The other distinction being that B&M was a growth play rather than an asset reassignment play.)
The potential retirement of Potts & Co in turn puts a huge weight on Trevor Strain in a takeover scenario.
The COO is the anointed one but, with so much financial re-engineering to be done, there must be concern that, in addition to lumbering Morrisons with debt it’s so studiously avoided and paid down, the shopkeeping basics – the retail detail – and all the other subtle features of the Potts administration, could easily be forgotten or lost.
That would be a shame. And it’s a potential loss for customers, colleagues and suppliers alike.