Marks and Spencer Group Plc (LON:MKS) shares gained after Credit Suisse upgraded the stock to ‘neutral’ from ‘underperform’ amid signs of a recovery in the UK consumer environment.
The UK retailer, whose clothing division was already struggling, has been hit by a slowdown in consumer spending as higher inflation and stagnant wage growth reduce disposable incomes.
In January, M&S announced that six of its UK stores would shut by the end of April while a further eight had been identified for closure.
READ: M&S to shut six UK stores by the end of April, with a further eight stores also identified for closure
“Most of the issues we highlighted in our January downgrade note ‘No end to transformation?’, such as competition, weak demand, poor footfall, core demographics, space, lagging online haven't gone away; however, the last three months have seen signs of UK consumer environment starting to turn with real-wages beginning to recover, inflation easing particularly in food, aided by £ strength which should all give some breathing room to the transformation programme,” Credit Suisse said.
READ: M&S shares retreat on drop in UK food and clothing sales over Christmas
Shares in M&S are down 10% in the year to date but Credit Suisse said it is “rightly priced” given it expects no earnings growth.
Credit Suisse predicts a 4.5% decline in pre-tax profit to £539mln in fiscal year 2018/19, driven by weak like-for-like sales but with less pressure from foreign exchange headwinds. It estimates a 0.4% drop in like-for-like sales in clothing and a 0.5% increase in like-for-like sales in food.
The brokerage left its target price of 285p unchanged as it expects shares to continue to trade at a 15% discount to the UK retail sector.
Shares rose 1.1% to 283.7p in morning trading.