COMPETITION objections notwithstanding, Iceland’s 780 stores would be a huge boost to Morrison’s forecast earnings, giving it the foothold in the convenience store industry that chief executive Dalton Philips made central to its growth plans last year.
They would also cement Morrison’s presence in the south of the country. Though the Bradford-based company has made an impact on London and the South East since its takeover of Safeway in 2004, its share of the London market is still half of what it is elsewhere.
UK grocers as a whole are trading at a discount to their European peers, but Morrisons is particularly undervalued – especially when you consider its shares are beating the STOXX Europe 600 retail index by nine per cent.
Though like-for-like sales in the first quarter of 2011 were up 2.5 per cent and well ahead of analyst forecasts, it remains discounted due to its lack of exposure to foreign markets and to multichannel retailing across convenience stores and the internet.
Its acquisition of both baby website Kiddicare and a 10 per cent stake in US online grocer FreshDirect earlier this year will have gone some way to proving its ambitions, but a move for Iceland would cement Philips’ plans and ease Morrisons’ transition into the smaller-store market, currently dominated by Tesco and Sainsbury’s.
Morrisons clearly wants to play with the (even bigger) boys, and its share price is likely to start to reflect that sooner rather than later.
Invest now and be rewarded for its ambition.