Marks & Spencer’s “anaemic” performance could leave it open to a takeover, argues stock market veteran Paul Mumford, senior fund manager at Cavendish Asset Management.
Despite the psychological turning-point of seeing Marks & Spencer (M&S) return to growth after two years in the wilderness, this week’s weak uplift in sales will fail to convince investors that the foundations for a rebound are in place.
The figures serve only to underline the problematic market position of M&S in recessionary Britain. This is particularly apparent within its food division, which is only now starting to address the competition of supermarkets and a premium brand that does not play well in Britain’s new age of austerity.
Even if M&S had met analysts’ initial hopes of 1.2% growth, investors would have had good cause to stay their hand.
Not only were comparatives incredibly weak, but December’s singular cold snap is ideal for the functional, comfort and quality knits of M&S over more fashion-focused High Street rivals.
Put simply, we are not yet seeing a long-term growth story re-emerge. This week’s figures are too anaemic to get the market to swing behind an M&S revival, and in particular support the equity raising that some have touted as necessary to fund future growth.
Stuart Rose’s legacy has been an enviable and sustainable brand rejuvenation that cannot be overstated. Belying these disappointing results is also an important chink of light with regard to gross margins.
The figures show that the battle for intelligent stock control is slowly being won by the retailer, which is vital to future profitability.
This is in welcome contrast to last year’s Christmas sales fiasco, which required massive discounts and repeated firesales to shift stubborn stock.
Yet much remains to be done, and the shares look fairly valued having risen in strong support of Marc Bolland’s impending appointment as chief executive.
The market’s infatuation can only last so long without a stronger foundation, which will otherwise see M&S on a long-term languishing spiral.
Should the share price continue to track down from 400p, a revival in global markets could yet see it become victim to a renewed takeover battle down the line.
The Cadbury takeover drama is warning enough of our transatlantic cousins’ ambitions to appropriate our stock market jewels, given half the chance.
All in all, Bolland could find the honeymoon rather grittier than last quarter’s share price recovery may have first suggested.”
