UBS ups target on Morrison but eyes growing threat from discounters

Analysts at UBS heaped praise on Morrison management's decision to go 'back to basics' which helped the grocer confound market expectations over the past year, but judged that the shares's valuation was now 'fair' - although sentiment towards the stocks was too negative.

Management's rethink helped the firm to improve availability, customer service and range, leading it attain the biggest gains in customer satisfaction from among the Big 4 grocers, according to their data.

Hence, UBS raised its target price from 207p to 240p whilst reiterating its 'Neutral' recommendation.

However, with the discounters opening new stores UBS had concerns about Morrison's ability to retain clients. Indeed, Asda and the discounters were its most direct competition, UBS said.

The inflation pressured bearing down on the company's manufacturing arm were also a soruce of concern.

Offsetting those worries, the broker judged market sentiment to be too negative, if anything.

Furthermore, a free cash flow yield of 6.5% provided support, it said.

Yet with the shares trading close to their estimate for net asset value, the price seemed "about fair".