Marks & Spencer Group PLC (LON:MKS) has received a double upgrade to ‘buy’ from ‘sell’ from analysts at Berenberg as the broker predicted a “significant improvement” in the retailers flagging clothing and home (C&H) business ahead of its third quarter results on Thursday.
In a note on Tuesday, the German bank said the appointment of Richard Price, the former boss of Tesco PLC’s (LON:TSCO) F&F clothing brand, as managing director of C&H is a “significant positive” for the segment.
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“Over the mid-term we are more optimistic following the appointment of Mr Price to lead the division, where we believe the buying and merchandising strategy has been a core issue”, Berenberg said.
Meanwhile, analysts also expect M&S’s joint venture (JV) with online supermarket Ocado Group PLC (LON:OCDO) to provide “longer-term growth opportunity in grocery”, while like-for-like sales in the company’s food division are expected to “remain positive”.
“While challenges certainly remain, including online weakness, execution risk in the Ocado JV, the legacy store estate restricting M&S’s ability to adapt to the changing retail landscape, and a less-than-watertight balance sheet, we believe this is more than priced [into the shares]”, Berenberg added, hiking its target price to 250p from 160p.
Looking ahead, the bank said that an orderly Brexit at the end of January was “likely to lift private spending above trend over the mid-term” as consumer confidence and fiscal stimulus returned to the UK, providing a tailwind for M&S across both its food and C&H divisions.
Berenberg’s positive assessment is likely to encourage M&S, which is hoping for a fresh start in the new year after a rocky 2019 that saw it relegated from the FTSE 100 for the first time in its history.
Investors seemed to have taken note of the bank’s optimism, with M&S’s shares up 3.8% to 221.2p in mid-morning trading.