Marks and Spencer Group PLC (LSE:MKS) can double its share price over the medium term as years of investment begin to bear fruit, Shore Capital has argued after a meeting with chairman Archie Norman.
Shore Cap, the company's house broker, said the retailer's focus should remain on growth and infrastructure investment rather than returning excess cash to shareholders.
Analyst Clive Black said the FTSE 100 group is "focusing upon growth over capital distribution" while also continuing to invest in stores, logistics and technology.
"Much has been achieved" since Norman joined as chairman in 2017, the retailer still had "much to do", including completing the reset of its full-line estate, building "fit for purpose" systems and improving its online clothing business.
M&S is targeting food sales of more than £10 billion in the 2027 financial year, up from £6.8 billion in 2022, alongside a plan to double online apparel sales from their 2022 base.
Black argued the investment programme should underpin sequential EPS growth and provide "a strengthening basis for rating expansion", with higher capital returns potentially following once the current spending cycle is complete.
He said the "medium-to-longer term journey could see a doubling of the group's share price", helped by a "virtuous evolution of the balance sheet".
Sustained earnings growth, a stronger balance sheet and eventually higher shareholder distributions are seen justifying a valuation of about 15 times earnings, which the analyst said implied the potential for the shares to double over the medium to longer term if earnings reached about 50p a share.
Investments such as the new distribution centre at Daventry and automation at Avonmouth should support future earnings growth, although they are likely to delay larger capital returns.
