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1. Company Snapshot

1.a. Company Description

Marks and Spencer Group plc operates various retail stores.It operates through five segments: UK Clothing & Home, UK Food, International, Ocado, and All Other.The company offers protein deli and dairy; produce; ambient and in-store bakery; meals dessert and frozen; and hospitality and ‘Food on the Move' products.


The company also provides womenswear, menswear, lingerie, kids wear, and home products; financial services, including credit cards, payment solutions, insurances, savings, and loans; and renewable energy services.In addition, it invests in and develops real estate properties; operates international franchises; and provides its products online.The company also exports its products.


It operates 1,487 stores in worldwide.The company was founded in 1884 and is headquartered in London, the United Kingdom.

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1.b. Last Insights on MKS

Marks and Spencer Group plc's recent performance was negatively impacted by the lingering effects of the April cyberattack, which disrupted its online operations and led to a 300 million pound hit to profit. The attack also slowed food sales growth, which had previously been a bright spot for the company. Additionally, the company's fashion rivals, such as Next, Zara, and H&M, reportedly benefited from M&S's pause on online orders, further exacerbating the issue.

1.c. Company Highlights

2. Marks & Spencer's Resilient Performance Amidst Challenges

Marks & Spencer reported a group sales growth of 22% year-over-year, driven by the consolidation of Ocado Retail, while excluding it, M&S sales were flat. The company's profit before tax and adjusting items was £184 million. Earnings per share (EPS) came in at 0.064, beating analyst estimates of 0.0376. The revenue growth was driven by a 7.8% increase in half-year sales, despite challenges in the Fashion, Home, and Beauty segment, where sales were down 16.4%. Food sales and market share growth are back on track, with three years of consecutive monthly volume growth outperforming the market.

Publication Date: Nov -07

📋 Highlights
  • Group Sales Growth:: 22% year-over-year, driven by Ocado Retail consolidation; excluding Ocado, sales were flat.
  • Profit Before Tax:: £184 million, with 7.8% robust sales growth despite challenges in Fashion, Home, and Beauty (-16.4% sales decline).
  • Food Sales Recovery:: 3 consecutive years of monthly volume growth, outperforming the market, while Food sales grew 14.9% via Ocado Retail.
  • CapEx Investment:: GBP 650-750 million allocated for supply chain, stores, and D&T to support growth and maintain investment-grade rating.
  • Online Sales Target:: Aim to double online sales from FY22 to 50% of total sales, focusing on availability, personalization, and smaller sizes.

Segmental Performance

The Fashion, Home, and Beauty segment faced challenges due to online sales and stock flow disruption, but is now making progress. International sales were down 11.6% due to website and shipment disruption, but performance improved in the second quarter. Ocado Retail saw strong sales growth of 14.9%, driven by M&S product sales growth of 20%. As Stuart Machin mentioned, "We're #1 for style, quality, and value, and leading the market for womenswear and lingerie," highlighting the company's strong product offerings.

Outlook and Valuation

The company anticipates profit to be at least in line with the prior year in the second half, as residual effects of the incident continue to reduce. Analysts estimate next year's revenue growth at 3.9%. With a current P/E Ratio of 27.76, it appears that the market has priced in some growth expectations. The EV/EBITDA ratio of 7.32 suggests a relatively reasonable valuation. The company's ROE of 9.9% and ROIC of 5.56% indicate a decent return on equity and invested capital.

Dividend and Cash Flow

The Dividend Yield stands at 0.93%, while the Free Cash Flow Yield is 11.53%, indicating a relatively attractive cash flow return. The company's ability to maintain its investment-grade rating and grow its dividend is reflected in its increased CapEx to £650-750 million this year, with a focus on supply chain, stores, and D&T.

3. NewsRoom

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imper.ai Launches With $28 Million in Funding to Pioneer Real-Time Defense Against AI-Driven Impersonation and Social Engineering Cyber Attacks

Dec -04

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UK Food & Grocery Markets Report 2024-2025 and 2029 with Profiles of Leading Players - Tesco, Morrisons, Aldi, Marks & Spencer

Dec -04

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Cyber attacks among biggest risks to financial stability, Bank chief warns

Dec -02

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What Catalysts Are Shifting the Story for Marks and Spencer?

Nov -30

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Will Landmark Data Center Deals Reshape Schneider Electric's (ENXTPA:SU) Digital Infrastructure Narrative?

Nov -29

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Asahi aims to restore logistics by February following cyberattack

Nov -27

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Food price hike fears mount after supermarkets hit with property tax rise

Nov -26

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Supermarkets set for higher business rates payments in Budget

Nov -25

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4. Business Breakdown

4.a. Revenues by Country

4.b. Revenues by Segment

5. Expected revenues mid-term growth (2.68%)

6. Segments

UK Food

Expected Growth: 2.5%

Marks and Spencer's 2.5% growth in UK Food segment is driven by increasing demand for convenient and healthy food options, successful implementation of its 'Foodhall' format, and strategic pricing strategies. Additionally, the company's focus on improving customer experience, investing in digital capabilities, and expanding its online delivery service have contributed to the growth.

UK Clothing & Home

Expected Growth: 2.8%

The 2.8% growth in UK Clothing & Home from Marks and Spencer Group plc is driven by a combination of factors, including improved product quality, effective marketing campaigns, and strategic pricing strategies. Additionally, the company's focus on digital transformation, including investments in e-commerce and mobile optimization, has enhanced the customer experience and increased online sales.

International

Expected Growth: 3.5%

Marks and Spencer's 3.5% international growth is driven by strategic expansion in Asia, particularly in India and China, where there is a growing middle class with increasing disposable income. Additionally, the company's focus on e-commerce and omnichannel retailing has improved its online presence, allowing it to tap into new markets and customer segments.

7. Detailed Products

Food

Marks and Spencer offers a wide range of high-quality food products, including fresh produce, meat, dairy, bakery, and prepared meals.

Clothing, Home and Beauty

Marks and Spencer sells a variety of clothing, home, and beauty products, including women's, men's, and kids' clothing, homeware, and beauty and personal care products.

M&S Bank and Services

Marks and Spencer offers a range of financial services, including credit cards, loans, insurance, and savings products.

Gift Cards

Marks and Spencer offers gift cards that can be used in-store or online to purchase products from any of its segments.

Flowers and Gifts

Marks and Spencer sells a range of flowers, plants, and gifts, including bouquets, arrangements, and hampers.

Wine and Champagne

Marks and Spencer offers a selection of wine and champagne from around the world.

8. Marks and Spencer Group plc's Porter Forces

Forces Ranking

Threat Of Substitutes

Marks and Spencer Group plc faces moderate threat from substitutes due to the presence of alternative products and services in the market. However, the company's strong brand reputation and quality products help to mitigate this threat.

Bargaining Power Of Customers

Marks and Spencer Group plc faces high bargaining power from customers due to the availability of alternative products and services in the market. The company needs to focus on customer retention and loyalty programs to maintain its market share.

Bargaining Power Of Suppliers

Marks and Spencer Group plc has a relatively low bargaining power from suppliers due to its large scale of operations and diversified supply chain. The company has a strong negotiating power with its suppliers.

Threat Of New Entrants

Marks and Spencer Group plc faces a low threat from new entrants due to the high barriers to entry in the retail industry. The company's strong brand reputation and established market presence make it difficult for new entrants to compete.

Intensity Of Rivalry

Marks and Spencer Group plc operates in a highly competitive retail industry, with intense rivalry among established players. The company needs to focus on differentiating its products and services to maintain its market share.

9. SWOT Analysis

Strength

Weaknesses

Opportunities

Threats

10. Capital Structure

10.a. Balance Sheet

10.b. Weighted Average Cost of capital

Value
Debt Weight 52.53%
Debt Cost 8.06%
Equity Weight 47.47%
Equity Cost 11.80%
WACC 9.84%
Leverage 110.67%

11. Quality Control: Marks and Spencer Group plc passed 4 out of 9 key points

12.a Historical Valuation

12.b Price/Earnings Ratio

12.c Margin Valuation

12.d Peers Valuation

Peers Group Analysis

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Sonae

A-Score: 7.2/10

Value: 8.6

Growth: 5.6

Quality: 3.0

Yield: 8.1

Momentum: 9.0

Volatility: 9.0

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Dillard's

A-Score: 6.9/10

Value: 5.1

Growth: 6.9

Quality: 7.1

Yield: 8.0

Momentum: 9.5

Volatility: 5.0

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Puuilo

A-Score: 6.8/10

Value: 3.2

Growth: 8.1

Quality: 6.7

Yield: 6.9

Momentum: 9.0

Volatility: 6.7

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NEXT

A-Score: 5.6/10

Value: 1.8

Growth: 5.7

Quality: 6.7

Yield: 4.4

Momentum: 7.0

Volatility: 8.0

1-Year Total Return ->

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Redrow

A-Score: 4.9/10

Value: 6.7

Growth: 3.8

Quality: 7.4

Yield: 4.4

Momentum: 4.0

Volatility: 3.0

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Marks and Spencer

A-Score: 4.3/10

Value: 5.8

Growth: 4.1

Quality: 4.9

Yield: 0.6

Momentum: 4.0

Volatility: 6.3

1-Year Total Return ->

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Peers Metrics

12.e Scoring Insights

12.f DCF BETA

Parameters

Short Term Growth

Short term Time

Long-Term Growth

WACC

Target Price

3.35$

Current Price

3.35$

Potential

-0.00%

Expected Cash-Flows