Marks & Spencer Group plc: Five reasons to be OW (model update)

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Marks & Spencer Group plc: Five reasons to be OW (model update)

Barclays | Marks & Spencer Group plc

4. Balance sheet strength and FCF generation facilitate accelerating growth capex and cash

returns. M&S ended the year with net funds and increased the dividend by +17% despite a

material contraction in earnings. We expect M&S to generate significant cash flows and

think surplus cash returns will be an increasingly important discussion topic going forwards.

5. UK political and global geopolitical uncertainty is weighing on demand for UK domestics,

especially with discretionary exposure, but M&S offers compelling value (Mar 27 PE c. 11x)

for attractive growth (HSD % in years two and three). We think FY results have opened the

door to a more sustainable re-rating.

Changes to estimates. We make minor changes to our model. We lift our PBT forecast from

£920m to £930m, which we think is consistent with management guidance (growth on a

FY24/25 base of £881m – with mid-single digit growth softly endorsed on the call). The uplift is

driven by Food margin (up to 5.2% from 5.1%, vs pre-cyber c. 5.4%) and ORL (reflecting a better-

than-expected FY25/26 outcome. We still (prudently) assume FH&B profits come in below pre-

cyber levels. Our EPS estimates rise by c. +1.5%. Our SOTP valuation rises to 410p from 400p.

Reiterate Overweight.

For investors soon to meet management, we update our regular questions for management,

with particular focus on four topics that were not explored in detail around results but could

open up interesting discussions.

MKS.L: Financial and Valuation Metrics EPS (GBP)

FY Mar 2025 2026 2027 2028 2029

EPS 0.31A 0.23A 0.31E 0.34E 0.37E

Previous EPS 0.31A 0.22E 0.31E 0.33E N/A

Consensus EPS 0.32A 0.23E 0.34E 0.36E N/A

P/E 11.4 15.2 11.1 10.3 9.5