Wm Morrison Supermarkets Limited

Future Development

Morrison's is a major British grocery store with a history spanning over a century. It offers a wide range of products, too numerous to list comprehensively, but we can provide an overview of some of Morrison's ongoing developments.

Acquisition of McColl’s

On May 9, 2022, Morrison's acquired the trade section and a majority of assets of McColl's, a company specializing in convenience stores. This move aims to establish a robust platform within the convenience sector. Part of this plan includes a target to increase the number of Morrison's own convenience stores under the Daily fascia from 450 to 1000 within the next two years.

It's worth noting that McColl's currently faces financial challenges, leading Morrison's decision to close 132 of its underperforming stores as part of the acquisition.

Additionally, Morrison's is actively working on enhancing various aspects of its business, including supply chain, logistics, workforce training, and administrative efficiency, as they integrate McColl's into their operations.

Environmental Protection Policies

To tackle the climate change and protect the environment, morrison has joined the "Task Force on Climate-related Finnical Discolosures(TFCD) and the board had layed out the following task to reduce waste and carbon:

Morrison is committed to reducing plastic usage with a specific goal of decreasing their own-brand plastic packaging by 50% by 2025. Notably, they are the first supermarket to pledge the complete removal of plastic bags for life. To address more challenging plastic items, they have introduced paper bags as an alternative, which is expected to reduce approximately 3,200 tons of plastic waste. In addition, Morrison has invested in recycling operations through a joint venture with Yes Recycling (Fife) Ltd. This partnership is focused on processing hard-to-recycle soft plastics and has the capacity to handle 15,000 tons of flexible plastic packaging

Apart from their plastic reduction efforts, Morrison is engaged in various environmental initiatives. They supply surplus food to organizations such as food banks, including FareShare and Company Shop. To combat food waste, they have scrapped of 90% of their own-brand milk products by changing the labeling from "use by" to "best before." Notably, milk is a prominent contributor to food waste in the UK, with around 490 million pints wasted annually, and it carries a significant carbon footprint.

Beyond the aforementioned initiatives, Morrison is actively engaged in refining its supply chain to reduce ecological impact. This involves their acquisition of Falfish, a Cornwall-based seafood processor. Falfish sources its products from a network of British fishermen who rigorously report the origin of their catches, aligning seamlessly with Morrison's sourcing strategies.

Moreover, Morrison maintains its involvement in the Ocean Disclosure Project, a voluntary platform for seafood sourcing disclosure.

Assumption

The Gross Domestic Product (GDP) of the United Kingdom was valued at 3,122.48 billion US dollars in 2020 and 3,070.67 billion US dollars in 2021, reflecting a 1.687% decrease.

To determine the cheapest supermarket in United Kingdom, the cost of a larger trolley of 135 groceries were analysed, made up of the original 38 as well as 97 more.

Result shows that Morrisons took over the title of being the most economical traditional supermarket for a larger shopping cart of items, a position it had held since January 2020. On average, our extensive shopping at Morrisons amounted to £341.92, whereas shopping at Asda averaged just £342.14 - a mere 22p more than Morrisons.

In contrast, Waitrose proved to be the priciest option, with the same cart of items in July totaling £376.66, which is £34.74 higher than Morrisons' cost.

Supermarket	Average trolley price
Morrisons	£342
Asda	£342
Tesco	£361
Ocado	£368
Sainsbury's	£371
Waitrose	£377

The assumption here is that as the GDP in the United Kingdom declines, Morrisons' sales and revenue may increase because people tend to prefer more affordable grocery stores when their income decreases. Therefore, the table below shows our estimation of Morrisons' revenue from 2018 to 2027 based on the assumption.

	2018 FY	2019 FY	2020 FY	2021 FY	2022 FY	2023 E	2024 E	2025 E	2026 E	2027 E
Total Revenue	22,479	23,534	22,416	24,727	23,310	26,807	30,828	35,452	40,770	46,885

Magnitude: Millions (M)

Discounted Cash Flow

A discounted cash flow was undertaken to provide a valuation for Wm Morrison Supermarkets Limited by forecasting future cash flows over a specific period and estimating a terminal value, which represents the business's value beyond that period. The projected cash flows are then discounted back to their present value using the company's weighted average cost of capital (WACC). The sum of the present values of the future cash flows and terminal value provides an estimate of the company's intrinsic value.

The table below represented he Unlevered Free Cash Flow (FCF) data for Wm Morrison Supermarkets Limited from 2018 to 2027, the company experienced a drop in recent years (2022). The projected FCF for the years 2023 to 2027 shows increasing gradually, indicating that Morrison will regain its momentum in the near future.

Fiscal Year	2018	2019	2020	2021	2022	2023	2024	2025	2026	2027
FCF	345	447	529	NA	194	214	235	258	284	313
					Projection Year	1	2	3	4	5
Present Value						227	265	310	362	423

Magnitude: Millions (M)

Wm Morrison Supermarkets Limited has an enterprise value of 20,674 units and an equity value of 17,250 units with a WACC of 6.21%. The implied share price is 7 units, showing a significant increase compared to the current share price of 3.65 units, with a remarkable 91.8% change.

WACC	6.21%
Sum of PV of FCF	1,585
Growth rate	4.50%
Terminal Value	25,801
Present Value of Terminal Value	19,089
Enterpise Value	20,674
(+) cash	333
(-) Debt	3,757
Equity Value	17,250
Diluted Shares Outstanding	2,451
Implied share price	7
Current share price	3.65

Magnitude: Millions (M)

Sensitivity Table
		Growth Rate
	7	3.50%	4.00%	4.50%	5.00%	5.50%
WACC	5.21%	6.943521281	5.17055606	5.17055606	6.943521281	17.96682183
	5.71%	10.11775476	6.896522233	6.896522233	10.11775476	62.28769622
	6.21%	10.11775476	6.896522233	6.896522233	10.11775476	62.28769622
	6.71%	6.943521281	5.17055606	5.17055606	6.943521281	17.96682183
	7.21%	4.11841452	3.340505278	3.340505278	4.11841452	7.037923491