RBC Capital downgrades Marks & Spencer to 'sector perform'
RBC Capital Markets downgraded Marks & Spencer Group Plc on Monday to 'sector perform' from 'outperform' but lifted the price target to 400p from 375p.
"M&S should be well positioned, given its strength in premium food and it has been fighting to win back customers in fashion," the bank said. "However it remains a UK consumer proxy, we think execution risk is higher post recent cyber disruption, and we think valuation upside is less than for some other retailers."
In Food, RBC expects M&S to continue to gain share on account of its exposure to premium, specialty, healthy food, and its more regular innovation from this year.
"We expect M&S to consolidate its 50% share of Ocado Retail, which should be broadly earnings neutral but should provide a further top line impetus given the structural growth of online retail," it said.
In Clothing, the bank expects M&S to push on well in areas of existing strength, and noted that the womens fashion offer has strengthened in recent years.
"We think the UK mid-market has become less competitive since the pandemic due to capacity withdrawal," it said.
"But M&S still has a lot of work to do to improve the efficiency of its supply chain, to become more competitive with best in class peers."
RBC said that following a strong recent recovery in the shares, M&S is now trading at 13x CY26e price-to-earnings, which it considers fair versus Sainsbury at 13.5x, Tesco at 14.5x and Next at 16.5x.
At 1030 BST, M&S shares were down 0.9% at 398.52p.
Disclaimer & Declaration of Interest
The information, investment views and recommendations in this article are provided for general information purposes only. Nothing in this article should be construed as a solicitation to buy or sell any financial product relating to any companies under discussion or to engage in or refrain from doing so or engaging in any other transaction. Any opinions or comments are made to the best of the knowledge and belief of the writer but no responsibility is accepted for actions based on such opinions or comments. Vox Markets may receive payment from companies mentioned for enhanced profiling or publication presence. The writer may or may not hold investments in the companies under discussion.
