James Gard: At the end of every year I make a list of things I hadn’t seen coming. For 2023, Marks & Spencer’s remarkable turnaround was one of the stock market’s biggest surprises. While the retailer’s revival has been a long time coming, investors dramatically re-appraised the company’s prospects, with shares doubling in a year. Naturally some fund managers were on board with the M&S rebound before last year, and they include those running Temple Bar and Edinburgh investment trusts, who first bought the shares in 2020 and 2021 respectively. Where does that leave investors as we start 2024?
The prospect of a restored dividend, even though it’s 1p per share, will be enticing to some with an income mindset, although there are better payers out there. The problem, as always with shares that have had a good run, is valuation. At around two pounds eighty a share, Marks and Spencer is trading around a pound above its Morningstar fair value estimate. The company’s financial year comes to a close at the end of March, and it’s already guided that profits will been skewed towards the first half of the year. Ie. The period just gone.
Fortunately we get a Christmas trading update on January 11. Food retailers managed to gain market share this festive period and this bodes well for Marks and Spencer, whose food division has outperformed its rivals. Investors will also be keen to know how the company’s clothing arm has done in the most recent trading period; and how the store refreshes and new locations are getting on.
For Morningstar, I’m James Gard.
