RBC sees further upside at M&S as momentum builds

(Sharecast News) - RBC Capital Markets has reiterated its 'outperform' rating for Marks & Spencer, saying the the business is well positioned to defy sector concerns.

As of Friday's close, M&S shares had fallen around 7% so far this year, with investors worried about more aggressive pricing tactics by Asda on M&S's food operations.

However, RBC believes these concerns are "likely overdone", with M&S having the least customer overlap with Asda compared with the other major food retailers. The broker explained that Asda tends to cater for lower-income customers doing a weekly big shop, whereas M&S customers visit for convenience food, last-minute dinners and/or special occasions.

Also, M&S's 50:50 Ocado Retail joint venture should provide more top-line growth, with nearly a third of Ocado Retail sales coming from M&S products.

For the company's clothing and home divisions, RBC said M&S is "pushing on well in areas of existing strength", like knitwear, denim and lingerie, while an improved sourcing outlook - 80% of its clothing is sourced in USD with 80% of FX hedged on a 12 to 18-month basis - should help support margins.

"At 12x CY25 P/E we see potential for further upside as investors reappraise the durability of its growth and exposure to favourable trends, including a flight to quality in food and clothing," the broker said.

M&S shares were down 2.5% at 353.87p by 1156 GMT, outperforming the wider FTSE 100 which was down 4%.