Member Info for Dawson_64

Evidently the system doesn't like mention of potential rivals - the asterisks are for v o x markets (unless that is also zapped in which case you still won't see it). It was tough to find any market report yesterday on the reason for the jump. Did completion of an intended deal really prompt such a move forward. Anyway not selling a winner just yet.

https://www.**********.co.uk/articles/movers-of-monday-15-march-2021--cc90498/

Drax Group (DRX)
shares ticked up 9.94% to 412.5p as it finalises acquisition?

Shares in the British electrical power generation firm jumped after the group finalised its recently unveiled acquisition of Canadian wood pellet supplier Pinnacle Renewable Energy.

Drax originally entered into an agreement for Drax Canadian Holdings, which is an indirect, wholly-owned subsidiary of Drax to purchase Pinnacle Renewable Energy in February 2021.?

The purchase price of C$11.30 a share values the fully diluted equity of Pinnacle at C$385 million (£226m), with an implied enterprise value of C$741m, including C$356m of net debt.

Drax believes the acquisition advances its biomass strategy ‘by more than doubling its biomass production capacity, significantly reducing its cost of biomass production and adding a major biomass supply business underpinned by long-term contracts.’

Takeover rumours resurfaced in Times article "Don’t stop to pay in Amazon’s first store".

Some MRW mentions.

"The first UK store will offer about 10,000 products from well-known brands and ranges from its grocery partners Morrisons and Booths."

"However, Black and many others believe that the Go store is just an opening gambit from Amazon and could lead to a takeover of a British supermarket. Unlike in the US, where the grocery market is highly fragmented by States, it would only take one swoop on a supermarket to significantly increase its grip n the UK market. Bradford-based Morrisons remains the most obvious takeover target due to its existing partnership with Amazon as it supplies groceries for its Prime app already. After falling out of the FTSE 100 this week it is also the smallest and more affordable of the Big Four grocers, could still give it national clout."

"The other takeover option would be Sainsbury’s, which is in the early days of new boss Simon Robert’s journey to spark life into the business after its failed merger with Asda."

"The online retailer has proved time and again that it is committed to UK groceries by strengthening its partnership with Morrisons, launching free food deliveries to Prime members last year and taking a sizeable stake in Deliveroo. "

MRW last exited on Dec 2 2015 at a price of 151p. Shortly after It sank to a low of 139p. Within 3 months it was over 200p and back in the index assisted by the announcement in late Feb of a tie up with Amazon.

Are the shorters really driving this lower? That was plausible when the declared short position was at 20% in 2016 but currently it is 5%. How can the hyenas be making any real gains when they keep having to fork out for divis and stock borrowing fees. MRW doesn't fit the profile of a company in danger of imminent collapse as did debt-crippled Carillion or Debenhams.

However if not the shorters then why is it priced so low? It has it's best sales performance for years albeit costs have killed the profit margin (but covid costs won't be here forever). A massive debt pyramid has chased after Asda so why not the massively superior finances of MRW?

Silchester, the biggest shareholder in MRW, have upped their stake to 13.01% = 313,528,860 shares.

https://www.lse.co.uk/rns/MRW/holdings-in-company-ix9c5fo2mu92fxi.html

That endorsement at a time of possible relegation from the FTSE100 shows this group sees value overlooked by others.

Info on Silchester from 2019
https://www.telegraph.co.uk/business/2019/10/25/one-britains-richest-fund-managers-builds-10pc-stake-morrisons/

https://www.tesco.com/groceries/en-GB/zone/aldi-price-match

https://digitalcontent.api.tesco.com/v2/media/ghs-mktg/1472aeea-c6ab-4951-99bc-c5eb9520ce79/price-match-doc-15-02.pdf

Rather than a gimmick it's been a masterstroke by Tesco to finally get the Germans on the backfoot after a decade of surrender. Imitation is the supreme flattery as Sainsbury copies the idea.

If the consumer thinks there is no price advantage on the basics then the advantages of the majors become apparent. The larger range means you get everything in one shop, less cramped aisles are safer, more relaxed checkout experience etc.

The numbers back this up: "Aldi is weaker than at any time since 2009. The Christmas results were bad enough. But its latest four-week sales, according to Kantar, were only up 3.8%." The Grocer

MRW was out of FTSE 100 in December 2015 and returned in March 2016. It is currently about 2 spots above an automatic exit (G4s now higher cap) and is the lowest ranked current FTSE 100 member apart from Pennon. Still time for a recovery before decision day in early March.

http://www.stockchallenge.co.uk/ftse.php

Positives: 86% store ownership, pension surplus, sales improving, wholesale division sales, makes a quarter of own fresh food. Impressive innovation of new products during covid - food boxes etc.

Negatives: The massively competitive backdrop of everyone from the Germans to the other majors chop, chop chopping prices. Sainsbury are now doing a price match with Aldi as do Tesco. Asda is now a massive debt pyramid but they too will be slashing prices.

Meanwhile: Next month's results will see profit halved to about 210m (after they agreed to meet the rate costs).... and a wave goodbye to the FTSE 100.

RNS today suggest Schroders continuing to unwind their holding and may explain recent weakness.

https://www.lse.co.uk/rns/MRW/holdings-in-company-t7brghw18h44w5q.html

Are Schroders intending to exit their position completely.

Do they actually own any of their store estate after sale and leaseback. Apart from shop stock and fittings there are no other assets. Any buyer would be taking on £95m of debt.

Does it say much for the goodwill of the McColls name that they need to be rebadged as Morrisons to make the shop more attractive to consumers.

Margins have been falling no doubt impacted by the creeping German discount competition when consumers refuse to pay for Mc high margin products.

Despite the negatives it does seem likely that Morrisons might one day dip into the petty cash and swallow the lot but at what price?

The dividend return here has been strong here at about 90p over the last 10 years. Share price won't be that meaningless if you bought at 250 though.

Assuming they continue with payments (in the face of social media tirades) it is yielding over 4% at current SP, there's a 2.04p interim payment on Friday. One sector we know will still be open for business price crashes like the rest. Would seem like bargain territory at current SP.

In September the company hailed its best sales figures in 16 years.

Today Kantar reports "Morrisons maintained its recent strong performance and gained market share, up by 0.2 percentage points to 10.1% on the back of 11.5% growth."

Meanwhile the share price is at a level seen over 20 years ago and over 30p below the figure at which CEO Potts took over in 2015.

They are doing everything "right" - staff bonuses, new employment, multiple price cuts, constant innovation to cope with crisis. Turnover is anticipated at 10%+ up but profits have fallen because of all the new sets of costs - online isn't nearly as profitable as selling in store. So I can't see shareholders getting much beyond last years sub 2p interim and no "special". However holders may get a boost from SP if market thinks company is well poised for future - post covid.

https://www.dailymail.co.uk/money/investing/article-8698847/Morrisons-post-double-digit-quarterly-sales-growth.html mentions possible £500m annual profits by 2022-23.

How do the numbers stack up for online delivery.

I see gross margin figures of 3.88 for MRW and 6.6 for Tesco.

On a £40 order is the average profit really just £1.60 for MRW. How much of that action does Amazon take for the delivery bit. £40 is where free delivery kicks in on Prime.

Various articles put in store pick and delivery costs at over £10 per order. Where is the profit?

The Aldi price match is a significant indication that the discounters are not going to get as easy a time as in 2008 if there is a further recession.

If the customer knows that all the basic foods have no price advantage in the discounters then a larger less crowded store without the crazy rush to self-pack your shopping gives Tesco a big edge.

https://www.kamcity.com/namnews/uk-and-ireland/supermarkets/sales-surge-higher-at-tesco-but-so-do-costs-stepping-up-aldi-price-match-campaign/

"TSCO 22 Sep '17 Have piled in to massive shorts on CIIN, OCADO & MRW - 1st 2nd & 3rd most shorted FTSE100 stocks. We have about 2% on loan compared with MRW 15.5%." There is a little bit more to it than just posting continual negatives about the company. He positively wants to promote negatives for personal profit. He wants to benefit from losses sustained by holders here. Points he raises are answered and then there is no follow up to address those answers. The job is done with the initial negative post. Of course it may take a little more than comments on here to move the market. However now that we know he is short that sheds a little more light on his motivation to post continually negative information. Has there ever been a single post saying anything positive about MRW? Price to open the short would have been about 233 on Sep 22.

I don't understand the eagerness to post negatives on one grocer if you are a holder of another firm in the same sector. The listed firms MRW, TSCO, SBRY may all be rivals but there is a strong correlation between their fortunes. Indeed it was that herd mentality by the majors that led them all into problems in the first place. The mad desire to secure more stores (the suicidal space race) meant that millions were spent on new stores which didn't actually make any money. Debts expanded to fund the madness. When austerity struck the Germans suddenly found an opening based only on price and the financially hobbled majors couldn't fight back effectively. The consequences of giving them a free pass will be with us for some time and the heady margins of the past may never be revisited. Significantly improved management performance has led the fightback here. However the market is already aware of the improvements with MRW currently trading on a higher multiple than the other grocers. I am also a TSCO holder. >>Was it remiss of BOD not to tell PI of looming Court case? No, the possibility of a court action has been known since the breach occurred. eg There is a mention of the court action exactly two years ago. https://www.theguardian.com/business/2015/oct/27/thousands-morrisons-staff-sue-supermarket-data-theft >>Does this explain MRW Short positions?? No the build up of debt to �2.8billion, multiple periods of falling sales and a succession of costly strategy reverses were what prompted the shorters. The data breach is a one-off negative, shorters are more interested if they think a company or sector is fundamentally crippled.

The court case is of interest beyond Morrisons. Just how far can you trust any employee to not do something which might damage the company. Insurance premiums to mitigate the increased potential for damage by rogue staff will soar if the company is deemed liable. David Emm, principal security researcher at Kaspersky Lab, argued that insider threats are a major challenge to organizations, accounting for 38% of all targeted attacks. �Employees rank at the very top of the list of threats to data and systems. Their motivations are often hard to predict and anticipate, ranging from a desire for financial gain to disaffection, coercion and simple carelessness,� he explained. �When insider-assisted attacks do occur, the impact of such attacks can be devastating as they provide a direct route to the most valuable information; in this case, customer data.� https://www.infosecurity-magazine.com/news/morrisons-staff-sue-supermarket/