Marks & Spencer came under pressure yesterday as the high street institution continues to grapple with dwindling demand for clothes and the higher cost of food.
Credit Suisse downgraded the retailer from “neutral” to “underperform,” lamenting an “uninspiring” quarterly update earlier in the month and slicing its target price from 370p to 285p.
Analysts said that there was “progress in some areas” at M&S, but argued that its food division and online operation were falling further behind the market. Shares in the company fell 2½p to 305¼p.
“We think the shares should trade at a 15 per cent discount to the UK retail sector, given the structural issues the company faces in both food and clothing, the lack of earnings growth over the next two years, the execution risks, given the various transformation programmes, and the limited visibility on the margin and cost implications of the updated [transformation] plan,” Credit Suisse said.
The Swiss broker cut its 2018 profits forecast to £581 million, which would represent a fall of 5.3 per cent, projecting that they would drop further next year to £551 million. “The UK retail backdrop we assume will remain challenging through the rest of the year, with weak apparel demand and high food inflation just as execution risks increase at M&S given the scale of changes in the business,” it said.
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Steve Rowe has been seeking to revive the company’s fortunes since becoming chief executive almost two years ago. Last night, the company’s market value was just shy of £5 billion. By contrast, Asos, the Aim-listed online fashion group that is due to release a trading statement today, is worth about £5.7 billion.
M&S “has to keep doing a lot of work just to stand still”, Credit Suisse concluded. “Given [the] unknowns, lacklustre trading trends in both food and clothing . . . and our assumption of yet another unforgiving year in retail in the UK in terms of demand and competition, we are taking a more cautious stance on the prospects for the shares over the next year.”
As the pound rallied, crossing $1.42 for the first time since Britain voted to leave the European Union in June 2016, the FTSE 100 stumbled. It finished the day down 88.4 points, or 1.14 per cent, at 7,643.43.
Fresnillo and Randgold Resources provided some light relief as investors sought miners, rising 49½p to £13.84½ and 214p to £72.62, respectively. Easyjet also climbed, by 35½p to £16.79, after PWC suggested that the recent collapse of Air Berlin could trigger a wave of consolidation in the European aviation market.
At the other end of the index, Sage Group slumped 53¼p to 768¼p after Britain’s biggest software company disappointed investors with a first-quarter update.
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The FTSE 250 also struggled, giving up 132.74 points, or 0.64 per cent, to close at 20,538.46. Figures from JD Wetherspoon, the pub operator, lifted its shares by 29p to £12.99.
Pets At Home closed down 7¾p at 185p. After trading ceased, the retailer confirmed that Kohlberg Kravis Roberts intendeds to sell a 12.3 per cent stake by way of an accelerated bookbuild. Numis and Merrill Lynch are acting as joint bookrunners.
On the junior market, the software platform provider Cloudbuy headed back to earth with a bump after reporting that annual revenues were lower than expected last year. Its Shares closed down 14 per cent last night at 3¼p.
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The Dow Jones industrial average reached another of those now-so-familiar record highs, closing 41.31 points up at 26,252.12, but technology stocks weighed elsewhere and both the Nasdaq and S&P 500 ended in the red.
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The advertising industry’s biggest beast continued to struggle yesterday as more analysts expressed concern over the climate facing the sector. Barclays cut its target for WPP from £15 to £14.50, saying: “We would argue that the vast majority of investors continue to see many structural problems with agencies.”
Shares in WPP dropped 27½p to £13.02½ after the bank released a pessimistic note. “We side with agencies to explain 2017 organic weakness,” it said. “Client pressure is more to blame than structural issues. That said, if agencies are right and the main reason for 2017 softness is clients putting pressure on their suppliers, including agencies, then why wouldn’t we see a repeat in 2018?
“If clients get the same service from agencies on lower fees in 2017, why wouldn’t they lower fees again in 2018? These uncertainties mean that 2018 growth is almost impossible to forecast.”
It came a day after Credit Suisse downgraded had WPP, turning neutral.
MFS Investment Management is WPP’s largest shareholder, with a 6.7 per cent stake.
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Sir Martin Sorrell is the largest individual investor, with 1.4 per cent.