Morrisons remains a ‘hold’ for The Share Centre

As Morrisons beats expectations for 2010 by announcing pre-tax profits of £874m, Graham Spooner, investment adviser at The Share Centre, explains why he prefers Tesco in the sector.

"2010 was a good year for Morrisons as its reputation for value encouraged shoppers through its doors. Last year saw pre-tax profits increase by 13% to £874m, ahead of estimates and up from £767m the previous year.

"Investors will be interested by the supermarkets pledge to carry out a £1bn share buy back scheme over the next two years and increase its dividend by a double-digit percentage over the next three years.

"The company is widening its reach to rival the likes of Tesco with plans to move into the convenience store and online arena - the first trial convenience store will open in July. Recent news of the acquisition of babycare online retailer kiddicare.com for £70m and the £32m investment in FreshDirect, an online grocer serving New York are also signs of Morrisons expansion.

"Despite these results, the supermarket remains cautious about 2011 and we think there is little to excite investors in the medium term and view the stock as no more than a hold. The shares are likely to remain stuck in a fairly narrow trading range.

"Our preferred supermarket is Tesco due to its attractive international earnings, good cash flow and the potential for sustainable growth."