(Sharecast News) - Goldman Sachs reinstated coverage on shares of Marks & Spencer at 'sell' on Monday, with a 170p price target, noting that the completed joint venture with Ocado has little impact on free cash flow estimates.
For 2020, GS forecasts JV revenue of £1.7bn, up 11.5% year-on-year and a 2.2% EBITDA margin, driving partial year associated income of £5.6m.
The bank said recent M&S trading patterns have continued to be disappointing, with Kantar first-quarter 2020 M&S UK clothing sales down 8%, while food sales are down 1%.
"We note that the Kantar July M&S clothing sales are also circa -8% year-on-year, representing a poor start to 2Q20E," it said.
Goldman said the JV and weak 1Q20 trading drive a 5.7%/4.3% reduction in its FY20/21 earnings per share estimates to 18.9p/18.8p, respectively.
"Our 170p discounted cash flow-derived 12-month price target implies a 9x FY20E EV/EBIT multiple (9x price-to-earnings).
"With UK peers trading between 6-13x and 10% downside to our price target (versus +18% coverage average), we reinstate with a 'sell' rating on the shares."
At 1500 BST, the shares were down 0.9% at 190.55p.