Morrisons' convenience moves drive upgrade by HSBC

Morrisons was upgraded to ‘hold’ from ‘reduce’ on Wednesday by HSBC after the supermarket group added a new wholesale contract that it hopes will soon be worth £1bn.

HSBC also raised Morrisons’ target price to 240p from 190p, as it noted the company’s ability to work around strategic challenges to scale its growth.

Morrisons announced the signing of a contract with McColl’s, with the addition of £1bn in sales facilitating further growth for the supermarket firm.

Morrisons will supply around 1,300 convenience stories and 350 newsagents on a wholesale basis, according to the new McColl’s deal.

According to HSBC analysts, the increasing moves towards wholesale operations bodes well for the company.

“The move further into wholesale adds meaningful sales volumes, which will improve buying terms for the group and allows greater asset utilisation of Morrisons’ facilities (namely distribution centres and vertical supply chain),” HSBC’s note said on Wednesday.

The company has also signed similar agreements with wholesale customers, including Ocado and Amazon.

HSBC did stress that were still concerns about Morrisons’ ability to grow but that management had taken steps to rectify that.

“We have long acknowledged that Morrisons has good management (and a strong balance sheet) but have been concerned by the company’s lack of scale and limited growth.

“But management have worked hard to find new, complementary avenues of growth, including the move into wholesaling via its agreement with Amazon, others and now McColl’s.”

Morrisons was trading 1.11% higher as of 11:18 BST following the upgrade from HSBC.