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24 May 2023
Sparks Flying
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Sparks Flying
Marks and Spencer Group plc (MKS:LON) | 258 -13.1 (-1.9%) | Mkt Cap: 5,256m
- Published:
24 May 2023 -
Author:
Okines Warwick WO -
Pages:
10
Full year beat and raise
MandS delivered FY Mar-23 adjusted profit before tax c.11% ahead of consensus, driven by a strong second-half recovery in Food profits. Clothing and Home improvements continue and both divisions have carried this momentum into the new financial year. We lift our profit forecasts materially and our price target rises to GBp 190. Following today''s share price move, however, we see greater upside elsewhere in the sector and maintain our Neutral rating.
Top Marks for the numbers
MandS delivered FY Mar-23 Adj PBT of GBP 482m, well ahead of consensus (GBP 433m) and our forecast (GBP 440m). The profit beat came mostly in Food, where Q4 sales growth was 300bps stronger than expected and operating costs were GBP c.25m lower than expected.
Stronger consumer perception
As management acknowledged, the MandS transformation requires plenty more heavy lifting. This includes making the end-to-end supply chain more efficient (supply base, distribution network and IT) and upgrading the store estate: two big areas that the company has wrestled with for the past two decades. Encouragingly, however, consumer perception about the brand, particularly value in Food and style in Clothing, has improved noticeably. We set out the evidence for improved customer perception of MandS in our Survey of Shoppers (see: Sparks but no flame).
Raising forecasts and target price
We lift our FY Mar-24 Adj PBT forecast from GBP 367m to GBP 483m, reflecting the GBP c.40m higher base from the prior year, improved cost guidance and encouraging start to the financial year. Our DCF-driven target price rises to GBp 190 and we maintain our Neutral rating.