logo-loader

M&S: Brokers give low marks and see few sparks

Published: 10:36 25 May 2016 BST

Marks and Spencer. Models attempt to make M&S clothes glamorous

Marks & Spencer Group PLC (LON:MKS) shares fell out of bed this morning and there is no shortage of views on the retailer's results statement.

The results themselves, for the 53 weeks to 2 April, were not too shabby, with underlying pre-tax profit up 3.5% year-on-year, but as is usually the way when there is a new sheriff in town - chief executive Steve Rowe replaced Marc Bolland earlier this year - the comments around the outlook for the socks and knickers seller were downbeat.

“The promise of ‘jam tomorrow’ is rarely appealing to investors especially if it is accompanied by some short-term pain and Marks & Spencer found itself at the bottom of the blue-chip index after new chief executive Steve Rowe warned that actions to improve the clothing and home range would hit profits," commented Russ Mould, investment director at AJ Bell.

“The group’s food arm continues to outperform in a competitive market and masks unsatisfactory results from the clothing and home business," he added.

The man with the golden gun

The retail team at Shore Capital has provisionally downgraded its pre-tax profit forecast for the current year to £625mln from £746mln, which it acknowledges is "a substantial reduction", but not enough to persuade it to abandon its 'buy' recommendation for Marks & Spencer (M&S).

"Clearly, we would rather be upgrading than downgrading our M&S financial forecasts. Furthermore, this company has had to go backwards to go forwards several times before now. As such, what makes this time different?" Shore asks.

"Well, whilst we do not characterise Mr Rowe as the man with the golden gun, we do believe, as we have written before, that he is someone with good and distinctive insights into the challenges of M&S with respect to clothing, beauty and home in particular, plus he is capable, decisive and passionate about the business. As ever with big commercial problems, if they were quick and easy to fix then they would have been done before now. However, in Mr Rowe we do also see someone who will bring new insight, urgency and pace to the proposition."

It sounds like the broker is putting an enormous amount of faith in Rowe. That faith is evidently not shared by Freddie George at Cantor Fitzgerald.

"The appointment of Steve Rowe as chief executive as from the beginning of April is unlikely, in our view, to improve prospects. There is no easy fix for the General Merchandise business. In the meantime, since 2008, M&S's track record has been at best underwhelming; UK pre-tax profits have declined by a third; international profits have been flat; the dividend has been reduced and net debt worryingly remains above £2bn," George said, as he reiterated his preference for Next Plc (LON:NXT), which given that Next is rated no more than a 'hold' in George's view gives you some idea of his views on Marks & Spencer.

The Emperor's old clothes

Liberum's consumer team is also on the 'bear' side of the argument.

"FY [full year] results were in line but the strategic review is much more important," Liberum said.

"In clothing M&S will be lowering prices and putting more staff in stores. The goal is profitable sales growth but delivery will be tough. The statement says 'These actions, combined with the difficult trading conditions, will have an adverse effect on profit in the short term'. We see a business that could take some years to resume earnings growth. The key issue of a large and inflexible UK store estate will be addressed in the autumn," it concluded as it reiterated its 'sell' recommendation.

Only one possible rating for Just Eat: overweight

Online food ordering specialist Just Eat PLC (LON:JE. has the right ingredients for success, according to Barclays.

The company has strengthened its market share, continues to see analysts upgrade their estimates, and it is creating additional value in Spain, Italy and Brazil.

"Concerns over logistics, Denmark and a director share sale mean the stock is still lagging the European sector and, with the forward multiple still near its lows, we believe this provides a further entry point," Barclays said.

Appropriately enough for the favourite of couch potatoes everywhere, the bank's rating is "overweight", with a target price of 550p. The shares currently trade at 446.5p.

Taxman gives quite a few coppers to Asiamet

Asiamet Resources Limited (LON:ARS, CVE:ARS) has announced the start of feasibility studies at the Beruang Kanan Main (BKM) copper project in Indonesia with a view to posting an updated estimate before the end of the third quarter of 2016.

VSA Capital Research said it was glad to see the work is now officially underway to bring the BKM deposit to final production design.

A refund of close to US$1mln from the Indonesian tax man was a nice bonus, and will help the company on its way.

VSA rates the shares as a 'speculative buy' with a price target of 6.2p. The shares were 4.4% higher at 2.35p in mid-morning trading in London.

Nice one, Cyril

N+1 Singer sees a read-across to WYG PLC (LON:WYG) and Waterman Group PLC (LON:WTM) from this morning's announcement that engineer Sweet Group (LON:CSG), formerly known as Cyril Sweett Group, has agreed to a 35p a share offer from WSP.

"To be fair the deal multiple here is at the lower end of expectations reflecting Sweett's chequered history. It does, however, reinforce the strong attraction of the investment case for WYG and Waterman especially at this stage of the cycle," the broker argues.

It has 'buy' ratings for both WYG and Waterman.

Chesnara reports strong 2023 results with improved cash generation and...

Chesnara PLC (LSE:CSN) chief executive Steve Murray discusses the company's full-year results for 2023 with Proactive's Stephen Gunnion, describing them as strong and particularly highlighting £53 million in commercial cash generation and a dividend coverage of around 150%. The company has...

47 minutes ago