M&S: City broker slashes share price target on lower profit prospects
Berenberg has downgraded its share price target for Marks and Spencer following lower estimates of long-term growth for the high street darling.
The broker downgraded its price target from 410p to 384p, a cut of six per cent, due to a decrease in its profit estimate.
“The potential for upside surprise now looks more limited than experienced during the
past two years of impressive recovery,” analysts said.
The broker added that M&S’ long-term strategy of continued investment in price, quality and stores will “limit cash returns” to shareholders over the next few years.
In addition to limited returns, the broker said that there were a few areas holding back growth at the retailer – namely higher wage costs, low profitability at Ocado Retail, and low-return international expansion.
The company’s large store presence “exposes it to pressure through employee costs and business rates inflation,” analysts said.
Employee costs are set to rise in April as changes to employers’ national insurance (NICs) take effect. M&S has estimated the addition to its wage bill at £120m.
With regards to online grocery growth, Berenberg added that it “may be some time” before Ocado makes a “meaningful contribution” to profit.
M&S and Ocado are currently involved in a 50:50 joint venture, Ocado Retail, which is responsible for ocado.com and same-day grocery service Ocado Zoom.
M&S share price down 13 per cent
M&S’ share price has taken a beating this week despite strong festive results, down more than 13 per cent in the last five days.
The food and clothing retailer told markets yesterday morning that food sales increased 8.7 in the 13 weeks to December 28, while clothing, home and beauty sales rose by a more subdued one per cent.
Despite the share price drop, analysts have remained largely upbeat. Interactive Investor’s Richard Hunter said that the “market consensus” for M&S was still “a strong buy… reflect[ing] hope all round that this success story can continue.”
Analysts at Peel Hunt agreed that M&S “continues to evolve its range skillfully… we see the weakness in the absence of an upgrade as a clear buying opportunity.”