Marks & Spencer’s improved strength in general merchandise enables new chief executive Marc Bolland to focus on a £300m opportunity in food, according to UBS.
The broker changed stance on M&S from neutral to buy after last week’s full-year results showed clothing market share gains and a return to like-for-like growth in food.
UBS analyst Andy Hughes said Bolland’s food sector experience could increase the chances of turning around that division and that a return to historic best performance would improve profits by more than 40%. He saw scope for an additional £200m of profit to come from ecommerce and the 2020 business improvement programme.
He said: “The theoretical upside from food recovery, best practice and further ecommerce growth could add well over 50% to the profit base. While we don’t expect all this to materialise - it requires a return to peak market share and margin in food; much may be reinvested - it highlights the scale of the opportunity.” Hughes said M&S’s momentum in food looks likely to have continued into the first quarter of the new year. He added: “Any improvement is likely to be taken very positively by the stock price, even if a peak share-peak margin combo may be unachievable.”
Other brokers were guarded about M&S’s food prospects. The retailer claimed last week that it is now 1% cheaper than Waitrose on 1,200 lines but HSBC analyst Paul Rossington said: “Although management claims that M&S food is now on a par with Waitrose, customer perception may take longer to unwind. Management indicated that further investment in price might be necessary. We regard this as inevitable.”
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