Marks and Spencer Could Double as Investment Programme Yields Results Says Shore Capital

Marks and Spencer Group PLC has the potential to double its share price over the medium term as several years of sustained investment begin to deliver tangible results, according to analysis from Shore Capital following a meeting with chairman Archie Norman.

The house broker has indicated that the FTSE 100 retailer should maintain its focus on growth and infrastructure investment rather than prioritising excess capital returns to shareholders at this stage. Analyst Clive Black noted that the company is “focusing upon growth over capital distribution” whilst continuing to allocate resources towards stores, logistics and technology.

Since Norman assumed the chairmanship in 2017, “much has been achieved,” according to the broker. However, the retailer still has “much to do,” including completing the reset of its full-line estate, building “fit for purpose” systems and improving its online clothing business.

The company is targeting food sales exceeding £10 billion in the 2027 financial year, representing a substantial increase from £6.8 billion in 2022. Alongside this, management has outlined plans to double online apparel sales from their 2022 baseline.

Black suggested that the current investment programme should underpin sequential earnings per share growth and provide “a strengthening basis for rating expansion,” with higher capital returns potentially following once the present spending cycle reaches completion.

The analyst stated that the “medium to longer term journey could see a doubling of the group’s share price,” supported by a “virtuous evolution of the balance sheet”.

Sustained earnings growth, an improved balance sheet and ultimately higher shareholder distributions are viewed as justifying a valuation of approximately 15 times earnings. This implied valuation, the analyst suggested, indicates the potential for shares to double over the medium to longer term should earnings reach approximately 50p per share.

Significant investments such as the new distribution centre at Daventry and automation at Avonmouth are expected to support future earnings growth. However, these capital expenditures are likely to defer larger capital returns to shareholders in the near term.