Marks & Spencer Group plc Ordinary 25p (MKS)

Company overview

It was 1894 when Michael Marks met Tom Spencer and founded what is today a major UK retailer for clothes, food and home products. The group has over 895 stores in more than 40 territories around the world, over 600 domestic and 295 international. It is the largest clothing retailer in the United Kingdom, as well as being a niche player in the food sector focused on premium quality convenience foods. Marks and Spencer Group PLC is listed on the London Stock Exchange and is a constituent of the FTSE 100 Index.

HL Comment (7 July 2010)

In a recent trading update (7th July 2010), bellwether retailer Marks & Spencer posted another consensus-beating performance, recording its third consecutive rise in quarterly sales.

Overall group sales were up 4.4 per cent. Excluding newly opened stores, its like-for-like sales in the UK were up 3.6 per cent, a slightly better than expected performance which was boosted by strong sales of clothing. While this rise was at the top end of analysts' forecasts, it was down from a 5.1 per cent rise in the previous quarter. Management comments were understandably cautious about the outlook for consumer confidence and spending and will continue to “manage the business accordingly”.

Negative Points:

• The recent budget and the actions proposed to reduce the national deficit, including the increase in VAT, may impact on consumer spending.
• Management are bracing themselves for an uncomfortable annual shareholder meeting when a number of investors are expected to register concern over remuneration packages offered to executives.
• In May, the group agreed a pension funding package worth £800 million in an attempt to reduce the scheme's £1.3 billion deficit. It will contribute £35 million a year for the next three years, rising to £60 million, on top of the regular contributions it already makes.

Positive Points:

• M&S Direct had a strong quarter with sales up 49 per cent and its "Shop Your Way" multi-channel ordering service is now in more than 400 stores.
• The 126 year old business benefits from a significant freehold property portfolio (circa £3 billion)
• In Food, the group have continued to outperform the market on a like for like basis. The retailer launched 570 new products including our Grill and summer dessert ranges.

Consensus

On balance, market consensus indicates a hold.

All yield figures are variable and not guaranteed.

Fundamental Data

Year Ending	Revenue (m)	Profit Before Tax (m)	EPS (p)	P/E Ratio	PEG	EPS Growth (%)	Total Dividend	Dividend Yield
03-04-2010	9,536.60	702.70	33.50	11.30	0.60	18.00	15.00	4.00
28-03-2009	9,062.10	706.20	32.30	9.50	n/a	(36.00)	17.80	6.70
29-03-2008	9,022.00	1,129.10	49.20	9.10	1.10	8.00	22.50	5.70
31-03-2007	8,588.10	936.70	39.10	16.70	0.60	29.00	18.30	2.70
01-04-2006	7,797.70	745.70	31.30	17.70	0.20	78.00	14.00	2.50