RBC Capital Markets upgrades Marks & Spencer to 'outperform'

(Sharecast News) - RBC Capital Markets upgraded its rating on shares of Marks & Spencer on Tuesday, saying it expects the retailer to outperform a challenging market thanks to its price investment in "high volume lines", less confusing promotional activity, a stronger new innovation pipeline and higher marketing spend.
RBC upped M&S shares to 'outperform' from 'sector perform' and hiked the price target to 230p from 200p.

"We see potential for sentiment to improve on M&S driven by 1) A continuation of positive like-for-like sales trends in Food 2) Clothing outperforming depressed H2 market expectations and 3) The market better appreciating M&S' cashflow generation and potential Ocado JV benefits," it said.

RBC said the stock's valuation is "undemanding" at circa 10x CY20 price-to-earnings.

The bank noted that M&S had a much stronger start to Autumn/Winter in the clothing segment, with LFL sales up around 5% in October, helped by improved availability, more frequent deliveries to stores, improved communication between merchandising and buyers and a relaunch of Per Una.

"Although we expect this to fade over the course of H2, consensus expectations of negative LFL sales look very conservative to us," it said.

At 1250 GMT, the shares were down 1.4% at 205.30p.