Interactive Investor

New Morrisons boss causes City upgrade

25th February 2015 14:55

Lee Wild from interactive investor

Morrisons has got itself a new boss. Just a week after under-pressure CEO Dalton Philips packed his desk for the last time, the supermarket has parachuted in David Potts, an experienced retailer with almost 40 years spent honing his craft at Tesco. While the reaction in the City was muted, at least one expert believes this could be the catalyst for a recovery similar to a resurgent Tesco.

"David is the best retailer I have worked with in 25 years in the industry," says Morrisons chairman Andrew Higginson. Potts, 57, who worked with Higginson at Tesco for 15 years, will start on 16 March, four days after the publication of Morrisons' full-year results.

"We believe the insights and emphasis that a very fit and sharp eyed Mr Potts will bring should create a firmer basis for an improvement in sales at the company, and we know that the market is particularly sensitive to sales momentum in retail at this time," says equally sharp-eyed Shore Capital analyst Clive Black.

Tesco shares have already re-rated substantially to recovery multiples, while Sainsbury's management admit to only negative like-for-like (LFL) sales for the foreseeable future. "We believe that Morrison stock can bounce to shareholder benefit," says Black.

Of course, Potts could always "kitchen sink" it further down the line, essentially wiping the slate clean by making every bit of bad news public. But Black points out that a lot of work has already been done, that the grocer has high freehold store participation and a manageable pension position relative to its superstore peers.

"As such we upgrade our 'hold' recommendation to a 'buy' in the belief that the stock can outperform the sector in the near-term and, with good execution, thereafter," adds Black. It would also be surprising if Potts and Higginson decide that the current e-commerce model and the 25-year no break clause contract with Ocado is "deemed to be the way forward".

This article is for information and discussion purposes only and does not form a recommendation to invest or otherwise. The value of an investment may fall. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment adviser.

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