Member Info for Dawson_64

Thanks for comments. My only guess at market perception of possible negatives might be the fact they now have a large debt position to finance compared to zero for a few years previously. Of course the idea is to finance to expand and it may all be fine.

There have also been some major shareholders reducing their position which may account for market disinterest. Camelot -1.47m, Octopus -612000, Fidelity -245000.

FEB 2025 - Ftse 100 hits all time high as does gold. Yet this is trundling along near the year's low despite what would seem to be ideal market conditions for the services offered. Any ideas of why this is currently so unloved and 150p+ lower than prices recorded in 2022-23.

I am re-reading Richard Farleigh's book "Taming the Lion".

He mentions only buy once something is already moving up, stay on board until evidence the fundamentals have changed. Trends continue longer than you expect.

So this one looks like a candidate - SP nudging multi-year highs, fundamentals much improved etc.

Hard to understand current decline in SP.

We are back to the level of last year's cash raising. There is a 10p ex div in a couple of days and the background economic circumstances and company reports indicate all is fine.

I suppose PI are always the last to know but have topped up today at what should be a decent price.

>>>Amazon is the only potential bidder that stands to lose if someone else, especially a PE bunch, gets their claws on Morrisons.

Much as an Amazon bid would be best for shareholders and Morrisons the company why will Amazon lose out when PE takes over? Wholesale has been the one area of expansion where MRW has not been impacted by the Germans so PE would want to continue that business and would want to continue to supply Amazon, one of their biggest wholesale customers.

Why hold up proceedings to go through the auction charade and then only increase by 1p? Did each group collude to suppress the final price?

Times article mentions: "Analysts believe Morrisons’ share price, which has flatlined at about 175p for five years, could not have hit such heights without takeover interest."

https://www.thetimes.co.uk/article/surprise-manoeuvre-in-battle-for-morissons-s3l68l8fl

The sp hit 270p exactly three years ago in Aug 2018. In 2007 the price was just short of 350p. More recently it had been unable to get over 200p.

The continued rise of the Germans has crushed grocery margins. What can PE do to make an already efficient grocer trade better when faced with that competitive landscape? Probably not very much so it's back to the initial idea that PE is only interested here because of undervalued property assets.

Amazon might be the only potential bidder actually interested in the actual grocery and food manufacturing business.

Much of the recent commentary mentioned how the stock market was not putting a correct price on "value" companies (such as MRW). Cannacord thought there were 200 UK companies which were ripe for a revaluation prompted by pe interest. https://www.thisismoney.co.uk/money/markets/article-9788967/Pandemic-predators-threat-200-UK-firms-say-City-analysts.html

So would the market really chop the price back down to 180p now that it's out in the open that pe can see value at least up to the 250s.

MRW largest shareholder "not inclined" to accept the Fortress offer.

https://www.reuters.com/business/morrison-stakeholder-silchester-says-not-inclined-support-fortress-takeover-2021-07-27/

"Clayton Dubilier & Rice is speaking with potential equity partners as it prepares an improved offer for British grocery chain Wm Morrison Supermarkets Plc, people with knowledge of the matter said."
https://www.bloomberg.com/news/articles/2021-07-26/cd-r-is-said-to-seek-equity-partners-for-improved-morrison-offer

The risk is what happens if the bid does not get 75% approval from shareholders. Do the bidders walk away? If so does that send the sp back down to the 180s or will the market keep the sp near the bid prices since pe obviously thinks there is still profit to be made at this raised valuation.

Any new owner of Morrisons is going to want to keep the Amazon contract anyway since it accounts for a large and increasing part of turnover.

"Morrisons supplies Amazon Prime members with same-day food deliveries. 'Morrisons on Amazon' now accounts for over 10% of sales in the majority of Morrisons stores where it is offered."

***

For Amazon a MRW purchase could be the UK start of wider grocery ambitions.

This US article speculates on why Amazon bought Wholefoods and their ultimate aim.

https://slate.com/business/2021/06/why-amazon-bought-whole-foods-groceries-online.html

"Amazon’s actual goal, which is same-day grocery delivery to everybody, everywhere. Online grocery shopping has been Amazon’s white whale for some time now. Groceries make up a consistent chunk of most people’s spending, and they’re kind of the only online shopping niche that Amazon hasn’t yet been able to dominate."

Price is above offer when mkt expects a higher bid.

https://www.dailymail.co.uk/money/markets/article-9788967/Pandemic-predators-threat-200-UK-firms-say-City-analysts.html

Supermarket giant Morrisons is worth £7.6billion and the board should have held out for more cash, according to analysts.

It accepted a 252p a share offer from US buyout giant Fortress this month that valued it at £6.3billion.

But the Canaccord Genuity report puts a 314p-a-share, or £7.6billion, price tag on Morrisons – fuelling concerns that the board caved in too early.

With rival suitors circling - including private equity firm Clayton, Dubilier & Rice which had a 230p a share bid rejected last month – a higher offer could materialise.

Shares closed at 263.1p yesterday.

Graham Simpson, at Canaccord Genuity, said: 'The fact that the share price is above the 252p recommended offer tells us the market also expects a higher offer.

Shareholders probably won't know until early August whether a rival bid will appear. Meanwhile it will cost you about 12p per share to find out rather than take the current price.

Morrison describe their property portfolio as worth 6bn so the current mkt cap of 6.4 doesn't seem excessive seeing as you get a grocery and wholesale manufacturing business thrown in too.

What were fund managers doing prior to the bid to allow this to sit as such a cheap valuation. What other obvious targets are there - Sainsbury may have already had it's rise prompted by the Czech stake. Tesco?

Quite a range of forecast SPs on the FT page

The 9 analysts offering 12 month price targets for Drax Group Plc have a median target of 500.00, with a high estimate of 600.00 and a low estimate of 280.00.

https://markets.ft.com/data/equities/tearsheet/forecasts?s=DRX:LSE

4 page piece on Drax in the May 6 edition of Shares mag. Positive write-up and Buy rec.

The news that France is threatening UK power supply via the interconnectors to Jersey is a repeat of threats made by the EU in November when they tried to tie in fishing rights to UK energy supply. These threats might be considered a positive for Drax which will be available when the wind not blowing for all the renewables.

One area of expansion for MRW might be to finally swallow McColls and have another shot at owning a convenience chain. You would also get to be the biggest post office operator - or would this be one of those "dumb decisions" we want management to avoid.

McColls shops are currently undergoing conversion to get a Morrisons facia. 300 stores will get the conversion by 2024, the chain has about 1200 stores. The stores stock Safeway or MRW branded products. Why pays for what? Presumably McColls pay the cost of store conversion. What do Morrison's get out of it? Is it just a better way to shift more wholesale product?

MCLS is currently valued at just 37m - that's a fraction of the amount Dalton lost on Kiddicare. However they carry a lot of debt and don't own any of their shops (?) so you just get the stock and the goodwill (which can't be a brand name worth much when the key aim is to improve the image by sticking a MRW badge on the shops).

https://www.thedrinksbusiness.com/2021/03/morrisons-plans-300-more-convenience-stores-as-part-of-mccoll-deal/

"The new deal, which extends the existing wholesale partnership until 2027, will acceleration the conversion of McColls stores to the new Morrison Daily format over the next three years. So far 31 stores have moved to the new fascia, with 300 planned by 2024.

McColls chief executive Jonathan Miller said the “milestone” extension would ensure the continued supply of a supermarket-quality offer across its entire estate and would allow it to execute a strategy to deliver sustainable profitable growth.

“In Morrisons we retain a long-term partner with best-in-class sourcing and manufacturing capabilities and a leading convenience offer for the local neighbourhood communities we serve across the country,” he said.

“Despite the challenges presented by COVID-19, the new partnership represents another significant step forward in achieving our strategic goal of increasing our fresh food offering in our store estate, while offering the best value for money for our customers. We are well positioned to continue enhancing our convenience offer and improving the quality of our estate at a time when the importance of neighbourhood stores has never been greater.”

Why dividends? Because it stops or reduces management chance to make dumb decisions. https://moneyweek.com/9902/moneyweek-basics-how-dividends-protect-your-shares-from-bad-management-60400

Look back at the major supermarkets over the last 20 years. They had gone on a crazy buying spree - the space race. No wonder the Germans had a free pass to expand when the majors had crippled themselves with reckless spending on new stores.

https://www.investorschronicle.co.uk/2016/09/30/shares/get-to-grips-with-grocery-retail-lSzztxrXw524JSuHTzkSIJ/article.html

Good analysis of the problem in this old article.

"The problem has been that all this new space has not made enough money in return. This means a lot of this money spent has been effectively wasted and has done considerable damage to the finances of the supermarket companies. Sales are higher, but profit margins have either stayed low - in the case of Sainsbury's - or collapsed.

To put this spending into some kind of perspective, the supermarkets were spending very large proportions of their trading or operating cash flow (the cash that comes into the business from selling goods) on capital expenditure - opening new stores and fitting them out, as well as keeping their existing stores in good condition.

This has meant that the companies' cash flow performances were dire. The amount of money left over after capex, tax and interest was paid - known as free cash flow - has been considerably less than the companies' reported profits. In fact, you could be forgiven for asking yourself what the true profitability of supermarkets actually was."

The composition of the expanded "Clean Energy" index is not to come into effect until April 19.

Up to that date it is not certain whether the so called transition stocks will actually be included. The first link mentions that on April 12 GCL Poly Energy Holdings was no longer to be an addition. The 2nd link mentions Drax as a transition stock which would benefit from the revised index. The wording of "under consideration" suggests a degree of uncertainty as to whether Drax is to be included and therefore a possible driver of the price either upwards or downwards based on the final constituent list.

https://www.spglobal.com/en/research-insights/articles/sp-global-clean-energy-index-expands

"Following a public consultation that concluded in March this year, S&P DJI announced the new composition of the S&P Global Clean Energy Index, which currently comprises 30 leading clean energy-related stocks, on April 2, 2021. The index is set to broaden when changes take effect on April 19, 2021."

https://www.bloomberg.com/professional/blog/bi-tracker-navigates-clean-energy-bubble-as-theme-etfs-rebalance/?tactic-page=431091

The S&P Global Clean Energy Index’s move to include flagship “energy transition” stocks, including larger and widely known U.S. utilities NextEra and Xcel, is likely to expand interest in the theme. Enel, Terna and Fortum, with market caps above $10 billion, are expected to combine for almost a 7% index weighting. Smaller companies under consideration, such as Acciona and Drax, would bring the exposure to European utilities to almost 10%.

On March 15 the price went up from 375 to 424 at one point before settling back to 406.6. There were multiple posts asking why had it happened and no market reports to explain.

https://www.etfstream.com/news/blackrock-clean-energy-etf-index-to-triple-in-size-following-spdji-consultation/

S&P had held a market consultation on March 15 on the expansion of the number of index constituents.

Bloomberg specifically mention Drax: "Drax Group’s volume was almost 3x its average and the stock gained 8% on March 15 after S&P announced the company’s inclusion in its clean-energy index consultation on a day the market was flat." https://www.bloomberg.com/professional/blog/clean-energys-big-2020-winners-prone-to-risk-in-etf-rebalancing/

The benefit to Drax of index inclusion would be that any fund seeking to replicate the index would now have to include the shares among their holdings. These are not trivial sums. The ETFs which hold the current 30 strong shares have very large chunks of the total share capital of the constituents in their portfolios.

However the prices of the existing 30 shares had been bid way beyond their true worth as a result of all the cash pouring in to clean energy. The revised index to an expanded possible 100 shares should reduce the excess froth on the individual stocks.

For Drax investors the question would be has the Drax sp already moved up to its long term level in anticipation of being included in the index or are there further gains to come.

Standard and Poors, the US index provider, has proposed increasing the number of holdings in its "clean energy index" from 30 to 100.

Currently ETFs have bid up the prices of the 30 stocks currently permitted to be in clean energy funds. Other shares will now be permitted into the clean energy classification and one of them is Drax.

"S&P is planning to more than double the number of companies that make up its clean energy benchmark to include those with “significant” and “moderate” clean energy exposure, rather than it being the primary business.

In the UK, coal power station turned biofuel burner Drax Group PLC (LON:DRX) is the only addition."

Could this explain at least some of the market's current support?

https://www.proactiveinvestors.co.uk/companies/news/943872/giant-clean-energy-etf-to-track-broader-range-of-companies-943872.html

(That is p r o a c t i v e link if that gets starred.)