Shore Capital remains upbeat on the prospects for Marks and Spencer Group PLC (LSE:MKS), arguing that the retailer remains materially undervalued given the strength of its operational turnaround and the scale of future earnings potential.
Following a meeting with management, analysts said the investment case is “strengthening”, underpinned by further progress in food, early signs of online fashion recovery and a disciplined infrastructure programme that supports long-term margin and cash flow improvements.
While ShoreCap could be written off as 'just a regional broker', its team, and in particular, Clive Black, vice-chairman, is highly regarded in the retail sector and widely followed.
So let's dig further. In the note, Shore does not adjust near-term forecasts, but it continues to model fully diluted earnings per share of 34.9p for financial year 2027, with a pathway to 46.6p further out.
Its analysts maintain that such a trajectory supports a re-rating of the shares to over 700p in the medium to long term.
M&S's Q3 trading update showed further market share gains in food and a steady recovery in fashion, particularly online.
While January trading was seasonally quiet, ShoreCap noted “a spring in management’s step”, citing improving availability, better stock flow and consumer enthusiasm for new collections.
The meeting also focused on the modernisation of the Fashion, Home & Beauty supply chain, which Shore views as central to building online profitability.
Management aims to reduce markdown risk through smaller, more flexible buying cycles, and increase margin convergence between online and in-store fashion sales.
In food, Shore highlighted the successful expansion into larger format stores, with M&S now confident in operating 20,000 sq. ft. outlets.
This shift supports sustained share gains and is being delivered within a capital expenditure envelope of £650–750m per year, which also includes store openings, logistics upgrades and digital investment.
Looking further ahead, Shore believes rising free cash flow, especially from financial year 2029 as pension payments ease, could pave the way for enhanced shareholder returns through higher dividends, special distributions or even buybacks.
Dividend cover is projected to fall from 8.5x in FY25 to 3.0x over the medium term.
International remains a more challenging area but is being reshaped towards a capital-light model, with EBIT growth expected to lag sales as partnerships are rebuilt. Still, Shore sees the potential for International to become a positive margin contributor in the outer years.
Despite the volatility of recent years, Shore concludes that M&S is now “better and stronger”, supported by a capable management team and a clear strategy that could drive considerable capital appreciation and income distribution.