Marks and Spencer Group PLC (LON:MKS) shares have been upgraded by Jefferies on its improved food proposition and recovering cash flow, while B&M European Value Retail SA (LON:BME) was downgraded after a strong run.
B&M’s shares are up 10% over the past 12 months and almost flat since the start of 2020, meaning the company was on the verge of being promoted to the FTSE 100 in the latest reshuffle.
This is on the back of a strong end to the discounter's 2019/20 financial year, boosted by consumers stocking-up on ambient food supplies, with the new financial year seeing a very upbeat start, with extremely strong seasonal sales, aided by sunny weather.
Still, the Jefferies analysts said, with more balanced footfall trends likely to prevail in the weeks ahead, “the critical issue now is whether this far superior earnings delivery can be maintained…B&M's non-food prowess may prove less of a respite later this summer”.
With the share price target kept at 410p, the rating was downgraded to ‘hold’ from ‘buy’.
Over at M&S the shares have more than halved since the start of the year and have barely participated in the wider rally since late March, meaning it has been significantly leapfrogged by the discounter.
While the group’s recent results showed a £52mln March hit from coronavirus, the Jefferies analysts said the thing that caught their eye was the improvement in food to flat sales over the most recent three weeks after a 9% decline in the previous six weeks, even though Clothing & Home sales were down 75%.
The number crunchers now expect food to see fractionally positive growth over the balance of the year and for net debt to be roughly flat by the year end.
“The disconnect between equity value and [free cash] potential is just too tempting,” the analysts said, upgrading to ‘buy’ from ‘hold’ but cutting the price target to 160p from 230p.