Important information: The value of investments and the income from them, can go down as well as up, so you may get back less than you invest.

SOME 18 months into the pandemic you might have hoped things were getting easier, but as we gear up to Christmas and the single busiest time of the year for retailers there are a number of unwanted items in the bagging area at Morrisons.

It - and the rest of the industry - can expect some industry-wide retail price inflation during the second half, driven by sustained recent commodity price increases and freight inflation, and the current shortage of HGV drivers.

As it says, Covid and now supply chain cost increases have and will continue to weigh down the whole British food industry for some time to come. Whether to pass on the inevitably higher costs to customers - especially at Christmas - will be a particularly thorny issue. And that’s on top of being able to get the goods to stores in the first place, because the shortage of HGV drivers isn’t going away overnight either.

But Morrisons is as certain, as it can be, that the second-half of the year is set to fare better profit-wise than this first-half has. Profits before tax and exceptional items totalled £105 million in the six months to 1 August, down from £167 million during the same period last year. It says second-half profits are expected to be “considerably higher”, assuming that fuel sales, its cafes and food-to-go ranges return to more normal trading patterns. There is also an assumption that direct Covid costs will lessen too in the next six months of the year.

There is something else occupying Morrisons and its investors though - a takeover. And that too is looking a little heated right now. Morrison is in talks with the Takeover Panel to launch a formal auction process, having last month agreed a £7 billion offer from Clayton, Dubilier & Rice, only to then attract a rival bid from a consortium led by SoftBank-owned Fortress Investment Group. Morrisons is now in a position where neither bidder has declared their final offer.

Bid speculation since June has been good for investors. Morrisons shares have soared from below 180p to their current price around 293p since the start of Summer.

That tops both offers - at 285p per share from CD&R, which Morrisons had already recommended shareholders to accept, and the 270p a share from Fortress. Shareholder meetings for both proposals have now been set for around 18 October, with the board to decide on a final recommendation following the auction.

In the meantime, Morrisons reiterated that it “continues to place very significant emphasis on the wider responsibilities of ownership” including the interests of suppliers, customers and staff.

While it is far from alone when it comes to the retail challenges it faces, with a potential new owner on the cards, the ‘new Morrisons’ could present a brand new challenge for the other ‘big four’ supermarket groups.

More on Morrisons

Five year performance

(%) As at 8 Sept 2016-2017 2017-2018 2018-2019 2019-2020 2020-2021
Morrisons 27.1 9.9 -24.1 8.0 60.9

Past performance is not a reliable indicator of future returns

Source: FE, total returns in GBP as at 8.9.21

Important information: Reference to specific securities should not be construed as a recommendation to buy or sell these securities and is included for the purposes of illustration only. When you are thinking about investing in shares, it’s generally a good idea to consider holding them alongside other investments in a diversified portfolio of assets. Investors should note that the views expressed may no longer be current and may have already been acted upon. This information is not a personal recommendation for any particular investment. If you are unsure about the suitability of an investment you should speak to a Fidelity adviser or an authorised financial adviser of your choice.

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