Barclays lifted its price target on Marks & Spencer to 215p from 210p on Wednesday as it said the retailer’s recent trading statement was encouraging.
The bank noted that sales in both key segments were better than it had dared hope, and the positive profit commentary suggests that both gross margins and costs have developed “very satisfactorily”.
“The consequent 18% profit before tax increase we assume for the current year is, of course, welcome, although we make much smaller increases for future years,” Barclays said.
“We think that M&S continues to offer an attractive free cash flow yield (>9%, or >13% if we adjust for the Ocado JV stake) and that both core UK businesses offer margin potential.”
Barclays pointed out that M&S has guided to Clothing & Home margins of more than 7% by 23/24, and said in the longer term there may be opportunities for Food to materially improve its logistics costs.
The bank reiterated its ‘overweight’ rating on the shares.
