Investors should “hang on” to Marks & Spencer as the UK’s economic situation improves

22nd April 2014

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Retail stockbroker The Share Centre is recommending investors “hang onto the coat tails of recovery at Marks & Spencer” as the better economic backdrop should help drive results going forward writes Philip Scott.

In its fourth quarter market update announced earlier this month, the FTSE 100 listed retailer announced that in the 13 weeks to end of March, clothing sales rose 1.3% and general merchandise sales edged up 0.2%. Overall group sales were up 1.9%.

The food division also performed well, considering Easter this year falls outside of its results period while the firm continued to show good gains across its online and international operations asserts The Share Centre.

While the one-year data show the group’s shares are up by 10%, the six-month figures tell a different story as over the period the stock is down by 11% as market conditions and competition remain challenging.

In a statement accompanying the results the group’s chief executive Marc Bolland warned that despite some improvement in consumer confidence, the firm remained cautious about the outlook.

But Sheridan Admans, investment research manager at The Share Centre, says: “We continue to believe that investors should hang on the coat tails of recovery at Marks & Spencer, as it demonstrates it is starting to get results from tackling its problems in womenswear and general merchandise. Improving consumer confidence and a recovering UK economy, led by domestic demand, should be supportive of results ahead.

“Results reported this month were positive with clothing and general merchandise total sales seeing a rise and the food division performing well, considering Easter this year fell outside of its fourth quarter period.”

The consensus towards the business on share data site Digital Look, is pointing to a ‘neutral’ or ‘hold’ position but there are analysts bucking the trend, with Jeffries recently reiterating its ‘buy’ recommendation.

Admans adds: “The retailer continues to look at ways to reduce costs whilst remaining competitive in these challenging conditions and expand its overseas operation.

“Its plan to transform the business into an international, multi-channel retailer is progressing well supported by the recent announcement to launch four new international websites in Germany, Spain, Austria and Belgium. International diversification should help balance its reliance on the UK consumer over time.”

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