Marks and Spencer Group PLC (LSE:MKS) was top of the FTSE 100 leaderboard on Monday, helped by a positive view on its prospects by analysts at RBC, who expect shareholder returns to start stepping up soon.
The Canadian bank upped its share price target to 400p from 350p as it tweaked its forecasts higher for a share it has an ‘outperform’ rating on.
The shares are up around 30% so far this year but the analysts see "further upside driven by food outperformance, clothing full-price sales and M&S's strong cash generation".
Sales momentum for M&S has been good of late, they forecast, and on top of that the UK food retail sector as a whole has enjoyed a rerating by the market.
Food volumes have been in the high single digits in the first half of the year, the analysts estimate, with price inflation of circa 1.5%.
"We think the mainstream grocers have been focussing on loyalty and the value segment, leaving room for M&S to outperform in the strong premium food space.
"This should help to drive further operating leverage in FY25 and to help Ocado Retail to maintain its recently improved performance."
An update from the Ocado Retail joint venture with Ocado Group PLC (LSE:OCDO) is due this Thursday (read the preview here).
Clothing margins are also expected to benefit from further sourcing gains and supply chain consolidation, as M&S "held its nerve" on its summer sale until August and also stopped selling bigger-ticket furniture.
Furthermore, shareholder cash returns "should improve over time", the analysts said, noting that M&S recently moved into a net cash position.