After a sharp rally and a nasty cyber wobble, Marks and Spencer Group PLC (LSE:MKS) has found itself back in familiar territory, solid but no longer the market’s darling.
RBC Capital Markets has cut its rating on the retailer from 'outperform' to 'sector perform', warning that valuation now looks fair and execution risk has crept higher.
The shares, at about 402p, have enjoyed a strong recovery since the summer, but the bank argues that M&S’s premium now prices in much of the good news.
The broker’s new target price is 400p, nudged up slightly from 375p but effectively implying little upside. That leaves M&S trading on 13 times expected 2026 earnings, roughly in line with Sainsbury’s on 13.5 times, and below Tesco’s 14.5 times and Next’s 16.5 times.
RBC’s analysts like M&S’s positioning in premium food, where the chain continues to gain share thanks to regular innovation, from “dine in” ranges to the kind of snack products that light up social media. Its 50% stake in Ocado Retail, the online grocer, should also provide a small tailwind as online grocery continues to expand.
The problem is not the offer but the plumbing. The retailer is still recovering from a cyberattack earlier this year that took its clothing and home website offline for six weeks, just as the spring selling season began. The disruption led to lost sales, extra clearance activity and a hit of roughly £300 million to earnings before mitigation, insurance and cost actions. RBC notes that M&S’s machine-learning systems, which help with food ordering, also went dark, delaying the return to normal stock levels.
Clothing and home have made strides under Stuart Machin’s leadership, particularly in women’s fashion, but the division still lags peers such as Next in efficiency.
RBC points to longer delivery times and higher logistics costs, areas now under review by John Lyttle, the newly installed clothing and home director. Warehouse automation plans, however, have been pushed back as spending shifts towards cybersecurity.
Beyond its own operations, M&S remains a proxy for the British consumer. About 95% of its sales come from the UK and Ireland, leaving it exposed to a softening labour market and slowing household cashflow growth. Food inflation has supported sales, but the tailwind is easing.
RBC has nudged up its earnings forecasts for the next two years, expecting stronger margins in clothing, helped by the cooler autumn weather. Even so, it sees little room for multiple expansion.
The bank’s valuation model, a blend of discounted cash flow and sum-of-the-parts, puts fair value at about 400p a share.
One positive is governance continuity: chairman Archie Norman will stay on for another three years from 2026, steering the retailer through the next phase of its digital overhaul.
But for now, with the shares having run up and operational risks back in focus, the stock looks fairly priced.
The stock was down 0.8% at 398.7p.