Marks and Spencer Group PLC (LSE:MKS)’s near-30% contraction through 2022 undervalues the company’s underlying traits and recent innovations, according to Shore Capital.
The broker’s director Clive Black said M&S’s large non-discretionary spend-based food offering, as well as its economically resilient customer base, shielded the supermarket and retail group from the impending cost of living squeeze in the UK.
Black also pointed to several avenues for growth for the company, including the distribution of its food in Cosa Coffee stores, the increase of coffee sales through its SPARKS loyalty trial and return of customers to its 339 cafes as lockdowns ease.
“In isolation these specific initiatives that are being introduced by M&S are relatively small beer.
“However, collectively they amount to a representation of a self-improving, more capable and relevant business where the aforementioned fundamental work in core areas is permitting progressive improvement to the shopper proposition that in time should reach the shareholder too.
“We believe a stock trading on less than 10x FY23 PER and c5x EV/EBITDA (c8x and 4x if the Ocado Retail Limited stakes is reversed out) represents real equity value.”
M&S’s share price has fallen more than 25% year-to-date as investors fly out of brands deemed superfluous in times of macroeconomic contraction.
By comparison, rival supermarket chain Tesco has contracted by 2.62% YTD, Sainsubury’s by 1.96% and Morrisons by 1.85%.
Last week, M&S was named the country’s favourite supermarket for the first time by Which?, with evidence that customers were increasing their spending on luxury food items as wallets swelled through the pandemic.