Interactive Investor

M&S shares: what the analysts think plus latest price targets

One of the UK’s best-known retailers is undergoing an impressive and much-needed transformation, and shareholders are finally feeling the benefit. Here’s how the City has reacted to latest results.

9th November 2023 13:38

Graeme Evans from interactive investor

A “chronically undervalued” Marks & Spencer Group (LSE:MKS) share price has been backed to reach at least £3 as favourable reviews for the resurgent retailer continued in the City today.

Peel Hunt said upgraded forecasts will “look miles too low” if M&S can deliver on the promises outlined in a five-year strategy briefing, which the company held with analysts after yesterday’s better-than-expected half-year results and dividend restoration.

The City firm left yesterday afternoon’s presentation convinced that the management team is “as impressive a unit as we have seen at the company in years, possibly ever”.

Peel Hunt said it learned a lot about how processes are improving within M&S, including the supply chain, in-store tactics and product sourcing. This has underlined its belief that the turnaround can be both a sales and margin story.

The positive commentary follows half-year profits of £360 million that comfortably beat City forecasts of £275 million, with the beat driven by both sides of the business.

Food like-for-like sales grew by 11.7% and margins were encouraging in clothing and home after an improvement to 12.1% from 9.8% the previous year. M&S also reported further robust trading in October, boosting confidence in the run-up to Christmas.

The City’s full-year profit consensus rose from £560 million to around £640 million, although M&S struck a cautious tone amid the highest interest rates in two decades.

As it had previously promised, the company declared a “modest” 1p a share dividend to reflect the improved operating performance, balance sheet and credit metrics.

This will be paid on 12 January and represents the first distribution to shareholders in four years. Peel Hunt is looking for a total for the year of 6p, rising to 8p a share in 2025.

Shares jumped 9% yesterday and are now up 90% to 243p over this year, with last night’s valuation of £4.8 billion giving M&S a stronger foothold in the FTSE 100 index after recently ending four years of mid-cap exile.

Despite the progress, M&S loyalists among its 100,000 or so retail investors will recall being above 500p in 2015 and sharing a dividend pot worth £375 million the following year.

Peel Hunt believes yesterday’s upgrades may end up looking too conservative if the strong trading in food and especially clothing and home (C&H) lasts beyond Christmas.

The broker said: “The value for money position in food continues to improve and style progress persists in C&H.

“The expression “positive dissatisfaction” prevails, and may do so in shareholders' minds, in that the shares have done well, but they remain chronically undervalued in our view. We stick with a strong Buy but our 300p target price is probably too low on a 12-month view.”

Among other City firms, JP Morgan today switched the retailer to “neutral” from “underweight” with its new price target of 260p up from 170p previously.

Analysts at Morgan Stanley upgraded their earnings forecasts but stick with their “overweight” rating and 280p price target for now.  

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