Morrisons Memo 300124
- Understand prospects of Morrisons selling its fuel forecourts business and additional land plots to Motor Fuel Group (MFG) – potential IRRs for MFG in installing ultra-rapid electric vehicle (EV) chargers in Morrisons’ car parks; potential returns for MFG in establishing food service outlets adjacent to these EV charging hubs; working capital impacts; acquisition funding sources; pro forma MFG financials; impact on Morrisons
- Understand how Morrisons can best maximise value in its food manufacturing business – estimating surplus capacity and ability to increase capacity utilisation through growing online, convenience and wholesale supply businesses; potential EBITDA from food manufacturing; valuation of food manufacturing business
- Understand potential EBITDA upside from: Morrisons on Amazon, Morrisons.com, Morrisons Daily, More rewards scheme, wholesale supply business
- Understand equal pay / equal value claims potential compensation risks and impacts for Morrisons (also for Asda, Tesco, Sainsbury’s and Co-Op Group), both from potential historic pay-back and prospective equalisation of store and distribution staff wage rates / employment terms
- Understand our scenario analysis and valuations across base, bear, bull, base case plus (sale of fuel forecourts business and land plots to MFG) and equal value claims compensation cases – coverage of SSNs, TL, TLA, TLB and SNs
- Understand feasibility of targeted £700m pa cost savings and net retention therefrom after cost inflation and price investment
- Understand remaining scope for property sale and leasebacks and impact on FCF
- Understand how Morrisons’ price competitive position is evolving against a backdrop of highly variable food price inflation
- Detailed analysis of:
- Potential sale of Morrisons’ fuel forecourts business and land plots to Motor Fuel Group
- Morrisons’ food manufacturing business (including of solo and aggregated food manufacturing entities)
- Growth levers – Morrisons on Amazon, Morrisons.com, Morrisons Daily, More rewards scheme, wholesale supply business
- Equal pay / equal value claims – potential compensation and ongoing impacts estimated
- Competitive landscape within UK convenience retail and wholesale
- Financial projections, DCF valuation and sensitivities – base, bear, bull, base case plus (sale of fuel forecourts business and land plots to MFG) and equal value claims compensation cases
- How much cash has Clayton, Dubilier & Rice (CD&R) invested in, and extracted from, Motor Fuel Group (MFG) and Morrisons? How can it best maximise value from both investments, to protect its significant equity investment in Morrisons, whilst improving strategic narrative and growth prospects of MFG following aborted sale process for latter?
- What valuation and strategic read-across can we draw from Asda’s acquisition of EG UK & Ireland regarding MFG’s potential acquisition of Morrisons’ fuel forecourts business and land plots?
- What valuations have fuel forecourt businesses transacted for in UK?
- What potential IRRs could MFG achieve from installing ultra-rapid EV chargers in Morrisons’ car parks (and how sensitive are these to electricity spreads, utilisation and other drivers) and establishing food service outlets adjacent to these EV charging hubs?
- What are growth prospects for, and valuations of, UK food service businesses?
- Does MFG have financial capacity to pay press-reported c. £2-2.5bn for Morrisons’ fuel forecourts business and land plots? How would it fund such an acquisition?
- Who are the major lenders for EV charging installations?
- How much surplus car parking space do Big 4 UK food retailers have?
- How have supermarkets been monetising excess car park space and how can they improve this?
- How are UK public ultra-rapid EV charging network providers performing and what can we read across for any potential acceleration and expansion of MFG’s roll-out of ultra-rapid EV chargers if it acquires Morrisons’ fuel forecourts business and land plots?
- Demand and supply analysis for UK EV charging market
- How much spare capacity does Morrisons’ food manufacturing business have and what EBITDA upside could be achieved from increasing utilisation through growth in online, convenience and wholesale supply?
- Will Morrisons Daily fare better than Morrisons’ prior convenience format, M Local? Why did M Local fail?
- If equal value claims compensation needs to be paid, how would each of Morrisons, Asda, Tesco, Sainsbury’s and Co-Op fare? Where are we in the claims process, does the outcome of similar claims against Next at the equal value stage have a read-across for food retailer defendants, how strong is the case of equal value claimants and how might food retailers’ material defence look?
- How does Morrisons’ food basket pricing compare with competitors currently and historically over time? How significant is the risk that Morrisons may need to invest more heavily in price to reset its competitive position to protect its volumes? How does vertical integration into food manufacturing impact Morrisons’ flexibility to compete on price as food cost inflation increases or decreases?