Berenberg nudges up price target on 'buy' rated Morrison's

They credited Morrison's for its ability to surpass expectations, despite facing "a very challenging trading environment", with pre-tax profits of £192m coming in 3% ahead of consensus estimates.

Furthermore, the German broker pointed out that with underlying free cash flow remaining "robust", increasing by 17% year-on-year, there was plenty to support excess capital returns to shareholders.

Berenberg said it remained "confident" about the outlook for Morrison's second half trading and expected profit growth would accelerate, with the group set to benefit from easing comparatives, reduced drag from wholesale start-up costs and the lower costs associated with its online channel.

The analysts also hailed Morrison's extension of its contract with Amazon and the addition of two new wholesale partners.

"Despite shares increasing 11% since we last published, we continue to believe Morrison looks cheap," said Berenberg.

"We believe a premium is justified given the group has one of the strongest balance sheets in European food retail and strong FCF generation supports a high level of capital returns with a c7% dividend yield."

In addition to raising its price target on Morrison's from 230p to 235p per share, Berenberg also reiterated its 'buy' rating on the grocer.