Proactiveinvestors United Kingdom Marks and Spencer Group PLC Proactiveinvestors United Kingdom Marks and Spencer Group PLC RSS feed en Fri, 19 Jul 2019 07:54:39 +0100 Genera CMS (Proactiveinvestors) (Proactiveinvestors) <![CDATA[RNS press release - Holding(s) in Company ]]> Tue, 16 Jul 2019 13:59:50 +0100 <![CDATA[RNS press release - Director/PDMR Shareholding ]]> Tue, 16 Jul 2019 13:41:25 +0100 <![CDATA[News - M&S CEO Steve Rowe to take over leadership of retailer’s Clothing and Home business ]]> Marks and Spencer Group PLC’s (LON:MKS) CEO Steve Rowe is to take over leadership of the retailer’s Clothing and Home business directly in the near term as the struggling division’s boss departs.

In a brief statement, M&S announced that Jill McDonald is leaving the business nearly two years after taking over as Managing Director of Clothing and Home.

Rowe commented: "Jill was brought in to establish a strong platform for the transformation of the Clothing and Home business. She has achieved that; she leaves with my thanks and good wishes for the future.”

The FTSE 100-listed firm’s CEO added: “She has recruited a talented team, improved the quality and style of product and set a clear direction for the business to attract a younger family age customer.

“The business now needs to move on at pace to address long-standing issues in our Clothing and Home supply chain around availability and flow of product. Given the importance of this task to M&S I will be overseeing this programme directly."

Thu, 11 Jul 2019 16:05:00 +0100
<![CDATA[RNS press release - Change in Director Responsibilities ]]> Thu, 11 Jul 2019 15:00:01 +0100 <![CDATA[RNS press release - Result of AGM ]]> Tue, 09 Jul 2019 14:38:47 +0100 <![CDATA[RNS press release - Block listing Interim Review ]]> Mon, 01 Jul 2019 18:27:12 +0100 <![CDATA[RNS press release - Total Voting Rights ]]> Mon, 01 Jul 2019 09:00:01 +0100 <![CDATA[RNS press release - Director/PDMR Shareholding ]]> Fri, 28 Jun 2019 13:24:38 +0100 <![CDATA[RNS press release - Director/PDMR Shareholding ]]> Wed, 26 Jun 2019 13:06:06 +0100 <![CDATA[News - M&S well-positioned to deal with challenges, says Barclays ]]> Marks and Spencer Group PLC’s (LON:MKS) restructuring plan leaves it well-placed to deal with the challenge of launching its online grocery business, according to Barclays.

M&S announced in February that it had entered into a joint venture with Ocado, which will give the British retailer a home delivery service for its groceries for the first time.

READ: M&S confirms £600mln rights issue and dividend cut to fund Ocado joint venture

As part the deal, M&S agreed to buy a 50% stake in Ocado’s UK retail business. It launched a £600mln rights issue and cut its full-year dividend to fund the acquisition.

M&S has been carrying out a wider restructuring of the business that includes closing stores, reducing food promotions and reinvigorating its struggling clothing and home business. The group has also exited overseas markets, including China.  

“We think the new M&S management has outlined a sensible plan with respect to its UK store estate, its clothing and home proposition and the loss-making elements of its owned international business,” Barclays said.

“This leaves M&S relatively well-positioned to deal with the challenges of foreign exchange headwinds and online growth.”

Barclays cuts target price for M&S shares 

Barclays maintained an ‘overweight’ rating on M&S but lowered its target price to 290p from 320p as reduced its profit forecasts for the next three years.

The bank said M&S has seen limited headlines sales in the food business due to two opposing trends – robust full-price sales growth, offset by weaker sales on promotion.

“This potentially bodes well for profitability and also indicates that headline sales growth may pick up markedly from late summer as last year’s promotional changes are annualised,” Barclays said.

The bank took a more cautious view on near-term clothing and home sales given last year’s tough comparatives. Sales this time last year were helped by the UK heatwave whereas this year’s weather has been “unhelpful,” Barclays pointed out.

“The average impact on our pre-tax profit forecasts for the next three years is circa - 2.5% --whereas the impact on our earnings per share forecast is circa -6.5% (higher because of the rights issue impact,” it said.  

Free cash flow yield 'hard to ignore' 

Barclays said cash generation has always been a core part of its investment thesis on M&S and the free cash flow yield remains hard to ignore, even after the rights issue.

The bank estimates M&S will generate about £1.5bn of free cash flow over the next three years against a £4bn market capitalisation.

“One might imagine that rebasing the dividend by 40% would have ended the dividend yield angle, but the weakness of the share price means that shares today yield close to 5.5%."

M&S shares rose by 1.6% to 207.6p around noon.

Tue, 25 Jun 2019 12:14:00 +0100
<![CDATA[RNS press release - Results of Rump Placing ]]> Thu, 13 Jun 2019 10:58:09 +0100 <![CDATA[News - Marks and Spencer rights issue receives lukewarm response, but rump placed easily ]]> Struggling retailer Marks and Spencer Group PLC (LON:MKS) saw its shares remain lower on Thursday following a disappointing response to its recent rights issue, although brokers managed to offload the rump left of the cash call fairly easily.

In a statement this morning, the FTSE 100-listed company said around 85.14% of the shares on offer were taken up by shareholders leaving the underwriters to do the thing they are paid for, which is to find buyers for the near 15% or so of shares that existing M&S investors did not want.

READ M&S confirms £600mln rights issue and dividend cut to fund Ocado joint venture

In a subsequent statement, the group added that those underwriters - Morgan Stanley, BNP Paribas, HSBC, and Shore Capital – had procured subscribers for all of the remaining 48,269,255 new ordinary shares, representing approximately 14.86% of the offering, at a price of 211p each.

The shares were offered to M&S shareholders at 185p each on the basis of one new share for every five shares currently held. In late morning trading on Thursday, M&S shares were down 1.9% at 215.10p, easing off earlier lows.

The company launched the £601.3mln rights issue last month to help fund a joint venture with groceries delivery technology specialist Ocado Group plc (LON:OCDO).

 -- Adds rump placing results, updates share price --

Thu, 13 Jun 2019 09:12:00 +0100
<![CDATA[RNS press release - Director/PDMR Shareholding ]]> Thu, 13 Jun 2019 07:00:15 +0100 <![CDATA[RNS press release - Results of Rights Issue ]]> Thu, 13 Jun 2019 07:00:13 +0100 <![CDATA[RNS press release - Total Voting Rights ]]> Thu, 13 Jun 2019 07:00:04 +0100 <![CDATA[RNS press release - Total Voting Rights ]]> Mon, 03 Jun 2019 09:00:02 +0100 <![CDATA[RNS press release - Director/PDMR Shareholding ]]> Fri, 31 May 2019 11:09:04 +0100 <![CDATA[News - M&S expected to narrowly avoid FTSE 100 relegation after rights issue ]]> Marks and Spencer Group PLC (LON:MKS) looks set to narrowly avoid relegation from the FTSE 100  index after the impact of its £601mln rights issue proved less than feared.

Last week M&S confirmed the terms of the massice cash call to underwrite its joint venture with online grocer Ocado Group plc (LON:OCDO) which see the high street retailer launch a grocery home delivery service.

The fully-underwritten rights issue was priced at 185p per share, a hefty discount to the 271p the shares closed at the day before the terms of the capital raising were announced.

READ: M&S confirms £600mln rights issue and dividend cut to fund Ocado joint venture

On Wednesday, M&S shares fell 5.9% to 235.80p as trading in the rights to the upcoming share issue hit the secondary market. 

The share price decline was largely due to the fact that investors can now pocket the right issue discount and sell their M&S shares if they decide. Existing investors who are entitled to participate in the cash call can now sell their ‘nil paid rights’ for 47p per share.

The decline left M&S with a market cap of about £3.9bn, which currently would put it in line for relegation from the FTSE 100 index at next week's quarterly review.

Rights issue to save M&S from FTSE 100 relegation 

However, the money raised from the rights issue is likely to save M&S from falling out of the top tier index even though it does not close until June 12, a week after the FTSE 100 reshuffle.

“While the fresh capital won’t actually be available until after the FTSE reshuffle calculation, we expect the index provider to give M&S the nod, on the basis the money’s in the post,” said Laith Khalaf, senior analyst at Hargreaves Lansdown.

“This makes sense to minimise changes to the blue chip index, and means tracker funds which follow the FTSE 100 don’t have to sell the stock, only to have to buy it back a couple of months later.”

Options for M&S shareholders 

Meanwhile, AJ Bell investment director, Russ Mould pointed out that shareholders have a few options with regards to the rights issue.

He said they can either: buy one new share for every five they already own; sell all of their rights that began trading on the London Stock Exchange on Wednesday; sell some of their rights and use the cash to buy some of the new shares; or do nothing at all and let their rights lapse.  

“Which is the right path to take will depend upon both the investor’s view of M&S strategy and its turnaround plan, as well as their personal financial circumstances,” he said.  

“They may not have enough ready cash to hand and may be reluctant to sell other holdings to raise the funds, for example. And anyone who is becoming tired of the seemingly never-ending stream of exceptional charges and promises of better times ahead may wonder whether they are throwing good money after bad, especially as Ocado has yet to consistently turn a profit itself from food delivery.“

Wed, 29 May 2019 11:57:00 +0100
<![CDATA[RNS press release - Admission of Nil Paid Rights ]]> Wed, 29 May 2019 07:00:05 +0100 <![CDATA[RNS press release - Publication of a Prospectus ]]> Fri, 24 May 2019 13:30:17 +0100 <![CDATA[RNS press release - Annual Financial Report ]]> Thu, 23 May 2019 13:29:07 +0100 <![CDATA[RNS press release - Director/PDMR Shareholding ]]> Wed, 22 May 2019 17:26:07 +0100 <![CDATA[News - Analysts raise doubts on M&S turnaround plan ]]> Marks and Spencer Group PLC (LON:MKS) said on Wednesday that its turnaround plan was on track but it could be a while before investors see any results. 

The retailer posted profit before tax and adjusting items of £523.2mln for the year to the end of March 2019, down 9.9% on a year ago, as revenue declined 3% to £10.4bn on weaker sales in both the food arm and the clothing and home business.

Until recently, the food division has been the group’s saviour against persistent sluggish sales in the clothing and home unit.

READ: M&S confirms £600mln rights issue and dividend cut to fund Ocado joint venture

But the food business has succumbed to the pressures of tough competition in the UK grocery market and subdued consumer confidence.

In an effort to cut costs and respond to the growing shift online, M&S is closing down a further 110 stores and has agreed a joint venture with Ocado Group plc (LON:OCDO) that will give the British high street retailer a home delivery service for the first time.

However, the Ocado joint venture won’t deliver M&S groceries until September 2020 while store closures are expected to hit food and clothing sales next year.

“The fact that sales are still expected to drop this year suggests the turnaround is still some way off,” said Ian Forrest, investment research analyst at The Share Centre.

“We continue to view the shares as a sell.”

M&S rights issue 

Forrest said while changes are being made and the deal with Ocado earlier this year was a “positive move”, M&S is asking shareholders – who’ve seen the share price halve in recent years – to contribute through a rights issue.

M&S is planning a £601.3mln rights issue to fund its deal with Ocado. The company is paying £750mln for a 50% stake in the joint venture.

Ocado deal 'expensive'

Some analysts think M&S is paying too much to move its grocery business online.

“I’d still view the deal as an expensive entry into a sector – online groceries – that doesn’t make any money,” said Neil Wilson, chief market analyst at

“M&S basket sizes are tiny (c£14) so they need people to change their habits entirely and think M&S is the place for their big weekly shop, which they won’t.

“It’s better than standing still but no silver bullet. Exposure to the UK high street is a major drag that won’t get any easier.”

M&S needs to deliver on restructuring plan, says analyst

Wilson added that he thinks the retailer is “disappointing on several fronts” and that doubts about its turnaround remain.

He pointed out the cost of restructuring is high so M&S will need to deliver on its plan or its financial position will start to come under greater scrutiny.

M&S took a £222mln charge related to its store closure programme as part of its transformation plan. That’s on top of the £320mln hit it took from store closures last year.

“These costs are not insignificant. Capital expenditure is meanwhile rising,” Wilson said.

Capital expenditure is forecast to increase to between £350mln and £400mln in fiscal year 2020, compared to £234.9mln in 2019. The rise is largely a result of increased investment in stores and clothing and home logistics capacity.

Wed, 22 May 2019 12:49:00 +0100
<![CDATA[News - M&S confirms £600mln rights issue and dividend cut to fund Ocado joint venture ]]> Marks and Spencer Group PLC (LON:MKS) has confirmed the terms of a £601.3mln rights issue and slashed its full-year dividend to help fund a joint venture with online grocer Ocado Group plc (LON:OCDO).

In February, M&S and Ocado clinched a deal that will give the British high street retailer a home delivery service for the first time.

M&S will pay £750mln for a 50% stake in the joint venture, which will deliver the company’s grocery products from September 2020 when Ocado’s deal with Waitrose expires.

READ: M&S set for big rights issue, divi cut to fund online grocery joint venture with Ocado

The company had previously announced plans for a £600mln cash call to support the deal.

On Wednesday, M&S said it aims to raise £601.3mln in a one-for-five rights issue at 185p each, underwritten by Morgan Stanley, BNP Paribas, HSBC and Shore Capital.

The group will issue 325mln new ordinary shares, representing about 20% of the existing issued share capital of M&S.

Rights issue and dividend cut to bolster balance sheet, says M&S 

M&S also cut its full year dividend by 25.7% to 13.9p per share.

“The board believes that, given the high operating risk the business faces, it is important to maintain a strong balance sheet and cashflow, to provide security and underpin the changes we need to make,” it explained.

M&S added that in the next four years it has substantial debt repayments due on its bond financing and a large pension obligation to fund, on top of its investment in the joint venture.

The company said it would prefer to limit dependence on bank debt financing in “uncertain times”.

“Therefore, having considered carefully other options, we believe it is appropriate to finance the joint venture by means of a rights issue and to reduce the group's annual dividend payment to a sustainable level, which we aim to grow in line with earnings over time,” M&S said.

M&S full-year profits drop 

Alongside the rights issue and dividend cut announcements, M&S reported a 9.9% year-on-year drop in pre-tax profit before adjusting items to £523.2mln for the year to the end of March 2019.

Revenue fell 3% to £10.4bn with declines in both the food business and clothing and home arm.  

UK food revenue dropped 0.6%, or 2.3% on a like-for-like basis. M&S blamed the decrease partly on the timing of the busy Easter shopping period. Even adjusting for Easter, food sales fell 1.5%.

In a bid to turn around food sales, M&S reduced short-term promotions and complex multi-buy offers. It has also been trying to broaden its appeal to attract a wider range of customers and expects the Ocado joint venture to increase its grocery market share.

The UK clothing and home business saw revenue drop 3.5%, in part due to the group’s store closure programme. Like-for-like revenue in the division was down 1.6%.

M&S said its clothing range remained too wide in the year, leaving it with too much stock. However, customers have responded well to the introduction of slimmer fits and more mid sizes.

In the year ahead, the company plans to pare back clothing options and range duplication, with an improvement in size ratios, a further focus on style and fashion, and investment in value.

Further store closures planned 

Following persistent struggles in the clothing and home business, M&S said it plans to close a further 85 full stores and 25 Simply Food outlets in addition to the 35 full stores closed last year.   

“M&S is changing faster than at any time in my career - substantial changes across the business to our processes, ranges and operations and this has constrained this year's performance, particularly in Clothing & Home,” said chief executive Steve Rowe.

“However, we remain on track with our transformation and are now well on the road to making M&S special again."

M&S saved £100mln in costs last year as part of its restructuring plan.

Store closures to dent sales in 2019/20

For the current financial year, M&S said it expects to see some improvement in trading in each of its businesses but progress is likely to be second half weighted.

The group expects net store closures to reduce food sales by 1% and clothing and home sales by 3%.

UK operating costs are estimated to decrease by up to 1%, due to continued cost efficiencies, store closures and lower depreciation.

Capital expenditure is forecast to increase to between £350mln and £400mln, largely as a result of increased investment in stores and clothing and home logistics capacity.

Shares fell 4.2% to 259p in morning trading. 

M&S in permanent turnaround mode, says analyst

“Some stocks feel like they are permanently in turnaround mode and high street stalwart Marks & Spencer certainly falls into that category," said AJ Bell investment director Russ Mould. 

On the rights issue being used to finance the joint venture with Ocado, Mould said it has "not proved popular" so far and necessitated the trailed cut to the full-year dividend.

"While its food arm has done well, it is not really a supermarket, and this does beg questions of how it will translate to an online delivery model which most people currently use for their weekly shop," he said.

“Still, this enduring retail brand needed to do something to remain relevant to today’s shoppers, time will tell if this was the right response.”



Wed, 22 May 2019 08:06:00 +0100
<![CDATA[RNS press release - Rights Issue announcement ]]> Wed, 22 May 2019 07:00:06 +0100 <![CDATA[RNS press release - Final Results ]]> Wed, 22 May 2019 07:00:05 +0100 <![CDATA[News - Marks & Spencer finals to fix FTSE 100 future ]]> Marks and Spencer Group PLC (LON:MKS) on Wednesday will publish results that could determine whether it remains a FTSE 100 company.

The full-year numbers are the high street retailer’s first since agreeing to buy half of Ocado Group plc’s (LON:OCDO) retail business for a hefty £750mln price, for which M&S said it would need a £600mln rights issue and a dividend cut.

READ: M&S plans big rights issue and divi cut to fund online grocery joint venture with Ocado

As a result, not only are pre-tax profits expected to fall by more than 10% to around £520mln, but the final dividend has been “reset” by 40%, meaning the final payout will be 7.1p.

Analysts at UBS said the key talking points in the results will be terms of the rights issue to fund the Ocado deal and further detail on timing and benefits of the joint-venture launch, together with updates on the store closure programme and pricing initiatives in the food business.

Since the Ocado news was announced, shares in Marks & Sparks have stumbled more than 12%, taking the company’s market valuation down below £4.5bn, making M&S the fifth smallest company on the UK blue chip index ahead of the next review of the benchmark on 5 June.

Laith Khalaf, senior analyst at Hargreaves Lansdown, said that demotion from the FTSE 100 will be determined by the reaction to the forthcoming results and obviously the price movements of other companies flirting with the bottom of the table, including easyJet PLC (LON:EZJ), Just Eat PLC (LON:JE.), Hikma Pharmaceuticals Plc (LON:HIK) and J Sainsbury PLC (LON:SBRY).

“Once again M&S is fighting to stay in the FTSE 100, a position it’s enjoyed since the blue chip index was launched in 1984,” Khalaf said.

“A demotion from the FTSE 100 wouldn’t directly affect the department store’s business performance, but it would be a hugely symbolic moment for M&S, and for the retail sector as a whole,” Khalaf said, noting that the changing of the guard has seen Ocado nestling relatively safely in the top half of the index after being promoted last year.

Tue, 21 May 2019 16:01:00 +0100
<![CDATA[RNS press release - Director/PDMR Shareholding ]]> Mon, 20 May 2019 18:17:39 +0100 <![CDATA[News - Will M&S be too late to the online party? Liberum thinks so… ]]> Marks and Spencer Group PLC (LON:MKS) shares were down again on Friday as analysts started to weigh up the potential impact of Waitroses' ambitious online plans.

Yesterday, Waitrose announced it would be replacing grocery delivery specialist Ocado Group plc (LON:OCDO) with Today Development Partners – set-up by one of Ocado’s co-founders.

READ: M&S's 'cultural change' sparks upgrade from Citi

The tie-up is part of plans from bosses at the upmarket supermarket group to grow the online business to £1bn annually once its current deal with Ocado runs out next September.

At that point, Waitrose will be replaced by Marks, which recently forked out £750mln for a 50% stake in Ocado’s retail division, which will start to use M&S food in its deliveries.

The bold move was seen as an expensive but necessary one, with analysts commenting that Marks had to get online by any means.

Competition to squeeze margins

But is it too late to the party? Tesco PLC (LON:TSCO), J Sainsbury PLC (LON:SBRY) and Inc (NASDAQ:AMZN) have been pouring money into their delivery services for years, while even Waitrose has a decent share of the online market, which it hopes to treble in the coming years.

City broker Liberum thinks M&S will have to play catch-up, which, to its mind, almost certainly means having to undercut rivals or invest huge sums to win the market share it needs.

“At a time when M&S is set to begin its online journey with Ocado, we think the fierce competition it will face from the likes of Waitrose, Amazon Pantry, Farmdrop, and Tesco to name just a few means that margins will be pressured as customers are acquired in any way possible (perhaps through reduced prices, or delivery proposition investments) to grab share in a growing market,” read a note to clients.

£70mln of synergies far from guaranteed

M&S reckons it can achieve synergies of up to £70mln a year through its partnership with Ocado – increased buying scale, joint marketing, conversion of existing M&S customers – which Liberum said “are a must”, if the 10% margin target is to be achieved.

But the analysts cautioned that these “may yet prove to be easier dreamt up than delivered”.

Liberum has M&S as a ‘sell’, with a 225p price target.

In mid-morning trading on Friday, Marks’ shares were down 1.4% to 262.6p. Since Waitrose unveiled its plans on Thursday morning, the stock is down almost 5%.

Fri, 17 May 2019 09:55:00 +0100
<![CDATA[News - Marks and Spencer 'cultural change' sparks upgrade from Citi ]]> Marks and Spencer Group PLC (LON:MKS) has been upgraded by Citigroup as it sees a “cultural change” has taken place at the retail chain.

This change in corporate philosophy, couple with the online grocery's joint venture with Ocado, is key to understanding why the investment case at M&S is “evolving”, the US bank said.

READ: M&S to open superstores that stock full food range ahead of online delivery launch with Ocado

M&S in February agreed to pay £750mln for a 50% equity stake in Ocado’s UK food retail unit, a business that generated sales of £1.48bn and underlying earnings of £34.2mln in its last full year.

The high street fixture said it will fund the whole upfront consideration via a £600mln fully-underwritten rights issue and would also cut back future dividends to free up cash.

Citi’s general retail and food retail analysts put their heads together to undertake a “detailed bottom up scenario analysis” of the Ocado JV, which suggests a £4.7bn sales base and £334m EBITDA after 15 years would be possible.

READ: Marks & Spencer weak as Credit Suisse cuts its rating to ‘underperform’ from ‘neutral’

“The Ocado JV deal is an elegant solution to a structural gap in the M&S business model and reflects a bold decision to buy into a market leading online proposition.”

With the changes all part of M&S “making itself more relevant for the next decade”, analysts Adam Cochrane and Nick Coulter said the structural changes at the group have the potential to “re-invigorate the M&S business to a greater degree than investors expect”.

Citi upgraded its rating to ‘buy’ from ‘neutral’, hiking its target price to 330p from 290p.

Mon, 13 May 2019 11:54:00 +0100
<![CDATA[RNS press release - Total Voting Rights ]]> Wed, 01 May 2019 09:00:01 +0100 <![CDATA[RNS press release - Director/PDMR Shareholding ]]> Tue, 30 Apr 2019 18:12:04 +0100 <![CDATA[RNS press release - Director/PDMR Shareholding ]]> Thu, 18 Apr 2019 17:07:06 +0100 <![CDATA[News - Marks & Spencer weak as Credit Suisse cuts its rating to ‘underperform’ from ‘neutral’ ]]> Credit Suisse has cut its rating for Marks & Spencer Group PLC (LON:MKS) to ‘underperform’ from ‘neutral’ after reducing its target price and estimates for the high street retailer on concerns over its focus on Food after its online joint venture.

The Swiss bank lowered its earnings per share forecasts for the FTSE 100-listed firm by 16% and 27% for 2019 and 2020, respectively, with risks to the downside, and reduced its target price for the stock to 250p from 315p.

READ: M&S to open superstores that stock full food range ahead of online delivery launch with Ocado

In a note to clients, Credit Suisse’s analysts noted that in February M&S and Ocado PLC (LON:OCDO) announced an online food joint venture that will allow M&S to sell its full range of food online for the first time, by replacing Waitrose on Ocado’s platform from September 2020

They pointed out that M&S's response to fragmentation and loss of market share for Clothing & Home is to try to double its Food market share and make it a full shop, hence the Ocado joint venture.

However, the analysts said, this is coming at a time of increasing competition for M&S’s core offering and they see long-term pressure on its like-for-like sales and margins.

In early morning trading, M&S shares were down 2.6% at 281p.

Thu, 11 Apr 2019 09:19:00 +0100
<![CDATA[RNS press release - Total Voting Rights ]]> Mon, 01 Apr 2019 10:09:34 +0100 <![CDATA[RNS press release - Director/PDMR Shareholding ]]> Thu, 28 Mar 2019 17:03:22 +0000 <![CDATA[News - M&S to open superstores that stock full food range ahead of online delivery launch with Ocado ]]> Marks and Spencer PLC (LON:MKS) reportedly plans to open larger supermarkets in a bid to revive its struggling food business.

The retailer will open new superstores that offer its full range of food to bring in consumers who prefer to do a big weekly grocery shop over smaller more frequent purchases, according to the Mail on Sunday.

READ: M&S and Ocado cost savings key to making tie-up more attractive, says RBC Capital

M&S has a chain of convenience stores branded Simply Food but they are too small to stock the company’s full line of food products.

The plan is to reorganise areas devoted to clothing into more space to sell food at its larger existing stores.

A store would devote about 12,000 sq ft to holding the full line of M&S food products, compared to about 7,000ft on average at Simply Food stores.

M&S believes if shoppers can access its full range of food, they are likely to buy more.

The company will also start selling its food online for the first time next year after it signed a £1.5bn deal with online food delivery firm Ocado PLC (LON:OCDO). Under the deal, Ocado will offer the full M&S product line for home delivery.

Last May, M&S announced that it would close 100 stores by 2022 as part of a plan to have fewer, larger clothing and homeware stores in better locations.

Mon, 18 Mar 2019 08:20:00 +0000
<![CDATA[News - M&S and Ocado cost savings key to making tie-up more attractive, says RBC Capital ]]> Marks & Spencer Group PLC (LON:MKS) expects its online grocery joint venture with Ocado PLC (LON:OCDO) to deliver cost savings and RBC Capital Markets thinks this is key to making the deal more attractive. 

In February, M&S announced a venture with Ocado that would see it provide an online grocery delivery service to customers for the first time.

READ: M&S set for big rights issue, divi cut to fund online grocery joint venture with Ocado

As part of the deal, M&S will buy a 50% stake in Ocado’s UK retail business for up to £750mln and will fund the purchase through a £600mln rights issue.

M&S also plans to cut back its dividends to free up cash for the deal, which spelt the end of Ocado’s long-running partnership with Waitrose.

High price for M&S to pay but deal makes sense in the long term, says RBC 

“At first sight this looks like a high price,” RBC said as it maintained a ‘sector perform’ rating on M&S but cut its target price on the shares to 270p from 300p.

“In effect M&S is selling close to 15% of its business at 6x EV/EBITDA to finance a business valued on a trailing EBITDA basis at over 30x.

“However M&S believes it can achieve synergies of at least £70mln per annum by the third year following completion and we think retention of these will be key to making the deal more attractive.”

RBC expects M&S will retain half the estimated cost synergies after investing in making its grocery items more price competitive. That would lead to M&S not exceeding its weighted average cost of capital (WACC) until after 10 years, RBC estimates.

Based on a recent RBC survey of 50 branded and own label M&S products, the company is 8% more expensive than the average basket for six grocers and 10% more pricey than fellow upmarket supermarket Waitrose.

“Strategically the transaction makes more sense for the long term,” RBC said.

“M&S will be gaining access to a scalable, albeit low margin online food business, which caters for affluent, time constrained shoppers.

“It combines M&S’ reputation for quality with Ocado’s tech platform, centralised distribution and operational efficiency.”

M&S moves to moderate dividend yield but with potential for earnings growth 

The decision to reset its dividend down by 40% to preserve cashflow is the second time M&S has cut its payout.

RBC said M&S is essentially moving from being a yield high, no-growth stock, to one with a more moderate yield of 4% but with some potential for earnings per share growth in the longer term. However, the broker thinks the Ocado joint venture is unlikely to be material to the bottom line for several years.

“Sentiment is fairly depressed but M&S now trades at a small P/E premium to peers,” RBC said.

“In UK general retail we would prefer to buy either Associated British Foods plc (LON:ABF) or B&M for their stronger growth prospects and for more valuation upside.”

RBC 'remains on the sidelines' on Ocado 

For Ocado, RBC believes the company is uniquely positioned to leverage the” significant potential” for global online grocer.

It said the joint venture with M&S is further validation of Ocado’s “best-in-class” online grocery solution but thinks this is fairly reflected in the share price.

RBC repeated a ‘sector perform’ rating on Ocado but lifted its target price to 1,000p from 750p, saying: “In light of execution risk and lack of visibility on future cash flow, we remain on the sidelines.”

The broker values the joint venture at 230p per share, or £1.6bn, on a discounted cash flow basis. The valuation reflects an estimated compound annual growth rate in revenue of 11% over 10 years, a terminal EBITDA margin of 4.3%, a capital expenditure to sales of 1% and a WACC of 10%.

“Our forecasts assume a 10% churn of Ocado customers that are loyal to the Waitrose brand and that c.50% of M&S online shoppers convert to over 10 years, spending an incremental £300 online annually.”

Ocado to reach 15% global market share through partners, RBC estimates

RBC values Ocado’s solutions business, which supplies its digital platform and warehouses to other retailers looking to set up an online delivery service, at 220p per share, or £1.6bn. This is based on deals Ocado has with Morrison Supermarkets PLC (LON:MRW), Bon Preu, Casino, Sobeys, ICA and Kroger and M&S.

“The difficulty in valuing Ocado shares is in predicting the scale of future grocery partners,” RBC said.

“Rather than assuming an arbitrary number of potential future deals being signed, we estimate the global market share of online grocery we view as achievable through Ocado's partners in 10 years': 15%, similar to Ocado's market share of the UK online grocery market. This implies the equivalent of six Morrisons-sized deals.”

RBC cut its forecasts for Ocado’s 2019 adjusted earnings (EBITDA) by 55%. It also reduced estimates for 2020 and 2021 adjusted EBITDA by 35% and 14%, respectively.

The downward revisions to forecasts are due to changes under accounting rules IFRS 15 that mean the recognition of up-front and development fees from solutions partners can only be recognised once operations start. The estimates also take into account higher costs related to the solutions unit.

In midday trading, M&S shares edged up 0.7% to 267p and Ocado edged down 0.7% to 1,046p.

Mon, 11 Mar 2019 11:51:00 +0000
<![CDATA[RNS press release - Holding(s) in Company ]]> Fri, 01 Mar 2019 16:44:52 +0000 <![CDATA[RNS press release - Director/PDMR Shareholding ]]> Fri, 01 Mar 2019 11:39:19 +0000 <![CDATA[RNS press release - Total Voting Rights ]]> Fri, 01 Mar 2019 09:00:01 +0000 <![CDATA[RNS press release - Holding(s) in Company ]]> Thu, 28 Feb 2019 17:43:40 +0000 <![CDATA[News - Jefferies cuts Marks & Spencer to ‘hold’ from ‘buy’ on concerns over Ocado jv plans ]]> Jefferies International has downgraded its rating for Marks & Spencer Group PLC (LON:MKS) to ‘hold’ from ‘buy’ over concerns that the retailer’s UK online grocery joint venture with Ocado PLC (LON:OCDO) may represent “a very expensive way” for the group to defend food volumes.

The US broker’s analysts also said they are worried by the message implicit in M&S plans to right-size its dividend and the deal's funding structure.

READ: M&S set for big rights issue, divi cut to fund online grocery joint venture with Ocado

M&S confirmed on Wednesday that it will pay £750mln for a 50% equity stake in Ocado’s UK food retail business that generated sales of £1.48bn and underlying earnings (EBITDA) of £34.2mln - after £48.3mln of fees paid to Ocado Smart Platform in 2017/18.

The FTSE 100-listed retailer said it will fund 105% of the upfront consideration via a £600mln  fully-underwritten rights issue and also plans to cut back its dividends to free up cash.

Jefferies analysts said the downgrade reflects the around 10% earnings and free cashflow dilution they expect to emerge from the joint venture.

In a note to clients, they added: “We are of the view that the £70mln of EBITDA synergy ambitions underpinning the deal rationale may prove rather difficult to deliver in full.”

The analysts said: “We are also concerned that the scale of growth ambitions implicit in potential CFC - customer fulfilment centre - openings (up to £4bn of extra capacity in the coming decade) is inconsistent with the mass market positioning that such growth would require.”

“In our mind,” they continued, “the main synergy driver  is the volume benefit of MKS replacing Waitrose's own label offering within”

Skewed demographics​

The analysts said the companies confirmed that represented around £370mln of sales in 2017/18 – versus M&S’s food sales of £6bn - which suggests a fairly ambitious synergy target.

They pointed out that Ocado UK has grown sales by around £1bn in the past decade - at reducing EBITDA margins.

The analysts concluded that Ocado remains a great customer offering, but with very skewed demographics.

They added: “We don't see the replacement of Waitrose with M&S as changing that brand appeal. And as a result we don't feel bullish about the potential for M&S to supercharge its food growth via the jv.”

Jefferies reduced its target price for M&S to 280p from 310p, with the stock currently trading at 265.90p, up 0.2% on the previous close, having tumbled 12.5% on Wednesday. 

Thu, 28 Feb 2019 12:10:00 +0000
<![CDATA[News - M&S set for big rights issue, divi cut to fund online grocery joint venture with Ocado ]]> Marks and Spencer Group PLC (LON:MKS) is to invest up to £750mln in a new 50/50 online grocery joint venture with Ocado Group PLC (LON:OCDO) for which the FTSE 100-listed retailer will need to launch a £600mln rights issue and which will lead to a cut of 40% in its dividend.  

Under the joint venture, M&S is acquiring a 50% share of Ocado's UK retail business, which will be supported by its Ocado Smart Platform (OSP), for a total consideration of up to £750mln, including a deferred consideration of up to £187.5mln, plus interest.

READ: Ocado and M&S confirm talks regarding joint venture

The JV will trade as but benefit from access to M&S's brand, products and customer database from September 2020 at the latest, following the termination of the current Waitrose sourcing agreement and migration of JV sourcing to M&S.  

In a statement, M&S said that for the 52 weeks ended 2 December 2018, the newly created JV would have generated revenue of £1.468bn and underlying earnings of (EBITDA) of £34.2mln, taking into account the newly created OSP contract and other fees and services and, furthermore, under the new sourcing arrangement the JV will no longer incur sourcing fees payable to Waitrose, which were over £15mln in 2018.  

The high street retailer added that it sees significant potential synergies for M&S Food estimated of at least £70mln per annum to be achieved by the third year following completion.

Cash call, divi cut

M&S said the transaction will be primarily financed by equity but added that it intends to conduct a rights issue to raise up to £600mln, which will be launched in due course, and which is fully underwritten on a standby basis by Morgan Stanley.  

Concurrently, the company said, its dividend per share is being reset by 40% to a sustainable level from which to grow in line with earnings over time.  As a result, the group anticipates paying a final dividend in respect of 2018/19 of 7.1p per share.   M&S also pointed out that: "Current trading remains in line with Board expectations."

Steve Rowe, M&S CEO said: "Our investment in a fully aligned joint-venture with Ocado accelerates our Food strategy as it enables us to take our food online in an immediately profitable, scalable and sustainable way.”

He added; "This is a transformational step forward in shaping the future of M&S and in becoming a truly digital-first retailer with at least a third of the business online."

Tim Steiner, CEO of Ocado CEO commented: "The combination of Ocado and M&S will allow us to grow faster, add more jobs, and create more value, as we lead the channel shift to e-commerce here in the UK. We are very excited by the many opportunities ahead."

Deal makes sense for both parties

Laith Khalaf, senior analyst at Hargreaves Lansdown commented: ‘This deal is a case of the old meeting the new. M&S has clearly decided if you can’t beat them, join them, and in a digital age it simply can’t afford to ignore the online audience for food.”

He added: “The market is likely to take the rights issue in its stride, therefore. M&S has announced a big dividend cut in its announcement, however, to shore up the balance sheet for future investment.

“That may well be needed to drag M&S into the twenty-first century, but income investors don’t like dividend cuts of that magnitude, and are prone to dump a stock if it doesn’t continue to meet their need for a decent yield. That’s likely to heap downward pressure on the share price.”

Khalaf continued: “The agreement to start selling M&S general merchandise through is also an interesting move. It’s a new departure for Ocado, which could be a sign it’s thinking of using its robot warehouses to attack this part of the market too. We’ll be watching closely to see how this develops.”

The analysts concluded: “For both parties, the deal makes sense, and is a positive move that will enable future growth. The dividend cut is a sting in the tail for M&S investors, however."

In early morning trading, M&S shares were 8.5% lower at 277.30p.

Meanwhile, Ocado shares were up 1% at 999.40p having jumped yesterday on news of the joint venture talks.

 -- Adds analysts comment, share prices --      

Wed, 27 Feb 2019 07:22:00 +0000
<![CDATA[RNS press release - M&S and Ocado announce new Joint Venture ]]> Wed, 27 Feb 2019 07:00:06 +0000 <![CDATA[RNS press release - Media speculation into potential deal with Ocado ]]> Tue, 26 Feb 2019 11:24:45 +0000 <![CDATA[RNS press release - Holding(s) in Company ]]> Mon, 25 Feb 2019 16:12:05 +0000 <![CDATA[RNS press release - Total Voting Rights ]]> Fri, 01 Feb 2019 09:00:01 +0000 <![CDATA[RNS press release - Director/PDMR Shareholding ]]> Wed, 16 Jan 2019 13:07:19 +0000 <![CDATA[News - Marks & Spencer names latest 17 stores earmarked for closure ]]> High street stalwart Marks and Spencer Group PLC (LON:MKS) has named the next 17 stores earmarked for closure as part of its turnaround plans.

M&S, like many of its peers, has struggled of late as shoppers desert stores in favour of the internet, while consumer confidence has also taken a turn for the worse.

READ: Little Christmas cheer for M&S

In a sign of its troubles, the FTSE 100 retailer reported a 2.2% fall in like-for-like sales over Christmas – a key trading period for the whole sector.

To try to bring its business into the 21st century and boost its flagging sales, M&S has implemented a five-year plan which will see it shut more than 100 stores.

Instead, it will shift its focus and investment online – it hopes online will account for a third of sales come 2022 – which will leave it with fewer shops in better locations.

1,000+ jobs affected

So far, 30 stores have been closed while another eight have been named.

The latest wave of closures, which includes stores in Huddersfield, Hull and Luton, will affect 1,045 staff, who will now be involved in a consultation process. No stores will close until this process has been completed.

Sacha Berendji, M&S's retail, operations and property director, said: "Proposing to close stores is never easy, for our colleagues, customers or the local community, but it is vital for the future of M&S.

“Where we have closed stores, we are continuing to see an encouraging number of customers choosing other nearby locations and shopping on M&”

Stores set for closure:

The latest shops proposed for closure are: Antrim (outlet), Ashford, Barrow, Bedford, Boston, Buxton, Cwmbran, Deal, Felixstowe, Huddersfield, Hull, Luton Arndale Centre, Newark, Northwich, Rotherham, Sutton Coldfield and Weston-super-Mare.

The 30 stores that have already closed are: AnDover, Basildon, Birkenhead, Bournemouth, Bridlington, Clacton, Covent Garden, Crewe (relocation), Darlington, Dover, Durham, Falkirk, Fareham, Fforestfach, Greenock (relocation), Keighley, Kettering, New Mersey Speke Shopping Park, Newmarket, Newry (relocation), Northampton, Portsmouth, Putney, Redditch, Slough, Stockport, Stockton, Walsall, Warrington and Wokingham.

The eight stores that have previously been announced as set to close are: East Kilbride, Edgware Broadwalk, Falmouth, Holloway Road, Kirkcaldy, Llandudno (relocation), St Helens (relocation) and Wigan (Food hall opening at Robin Retail Park).

M&S shares were down 0.7% to 275p on Monday afternoon.

Tue, 15 Jan 2019 14:44:00 +0000