Fundamental Insights About Marks And Spencer Group PLC (MKS)

Business Overview

Marks and Spencer Group Plc (LSE:MKS) incorporated in the year 1884 with headquarters in London, the United Kingdom, is a well-known supplier of clothing, footwear, home furnishings, beauty care, accessories and foods products through a network of retail stores and online channels. The company trades at the London Stock Exchange and is a part of the FTSE 100 index.

The company’s business operations are spread across 57 countries having a customer base of around 32 million users. Total established stores are around 1,463 with a total headcount of about 81,000 employees. [optin-monster-shortcode id="wxhmli4jjedneglg1trq"]

Financial Highlights – 1H FY2019 (£, million)

(Source: Interim Reports, Company Website)

Financial Commentary

• The company reported group revenue of £4,966.9 million for H1 FY19, a decrease of 3.1 per cent as compared to the last year, mainly because of the Easter timing effect with around 0.8 per cent in Food and 0.2 per cent in Clothing & Home and the company accelerated the United Kingdom store closures.
• In H1 FY19, profit before tax & adjusting items was up by 2 per cent to £223.5 million as compared to £219.1 million reported last year, due to unchanged in the guidance of the phasing of costs in full year.
• In H1 FY19, free cash flow before adjusting items reported for the period was £300.4 million as compared to £218.4 million reported last year. There was an increase of £0 million in free cash flow of the company due to the working capital inflow, lower capital expenditure, lower interest and taxation payments.
• The company’s profit before tax surged to £126.7 million in H1 FY2019 as compared to £118.3 million in H1 FY2018.
• The company’s profit after tax was £89.8 million in H1 FY2019 as compared to £84.6 million in H1 FY2018. There was a decrease of 6.1 per cent due to a decline in revenue segment.
• The company’s basic earnings per share surged by 3.8 per cent to 5.4 pence as a result of an increase in profits year-on-year basis. Adjusted basic earnings per share stood at 10.6 pence for H1 FY2019 (H1 FY2018: 10.7 pence).
• Net Debt reported in H1 FY19 was £1.78 billion (H1 FY18: £2.03 billion). There was a decrease of 12.3 per cent in net debt of the company due to strong capex control initiatives and slightly lower working capital year-on-year.
• The company’s reported ordinary dividend per share for H1 FY19 was 6.8 pence.

Ratios

(Source: TR)

Ratios Commentary

• EBITDA margin reported was 10.7 per cent in H1 FY 2019, reflecting a decrease of 0.1 per cent when compared with last year data.
• Net margin of 1.8 per cent for H1 FY19 stood higher by 0.1 per cent as compared to the last year.
• On the liquidity front, Marks and Spencer liquidity position was slightly higher than the last year data. Current ratio increased in H1 FY 19 as compared to the previous six months data.
• On the leverage front, the debt-equity ratio was lower as compared to the previous year data.

Recent News

On 27^th February 2019, Marks and Spencer Group Plc had announced the Joint Venture with Ocado Group Plc. Ocado Group is the key player in the digital grocery market in the UK’s market. Marks and Spencer have acquired 50 per cent share with a total consideration of £750 million in Ocado Group, which will be supported by OSP (Ocado Smart Platform). The company has decided to cut down the dividend by 40 per cent i.e. 7.1p per share for 2018-19 almost 62 percent lower than the last year dividend of 18.7p.

Growth Perspective and Risks Management

• Trading will remain challenging, and the growth of online competition will remain strong in all the major markets.
• In 2019, capital expenditure would be between £300-£350 million before disposals (previously £350-£400 million).
• Company’s revenue in the financial year 2019 will be lower than in 2018, reflecting the impact of the regulatory changes in the UK and EU.

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Stock Performance

At the closing (as on 28^th February 2019), Marks and Spencer stock closed at GBp 273.0, up by 2.86 per cent from its previous close, Marks and Spencer Group Plc outstanding market capitalisation stood at £4.45 billion with a dividend yield of 6.85 per cent. During the last one-year, the stock reached a 52w high of GBp 316.60 and a 52w low of GBp 240.00. At the close, stock of Marks and Spencer was trading 13.77 per cent below its 52w high and 13.75 per cent above its 52w low, and it indicates there are possibilities with the stock to move up further in short to mid-term time spam. Stock’s Beta of 1.13 makes it shares comparatively slightly volatile against the benchmark index. In last one-year, company’s shares have delivered a return of negative 7.65 per cent.

At valuation standpoint, Marks and Spencer shares were trading at an LTM PE of 11.3x compared to the industry median of 11.3x, and this indicates company’s valuation is in line with its peers operating within the same line of business.

Conclusion

The company’s growth prospects look favourable as innovations have been done in the online segment. Given the current trading levels which indicate the stock movement towards 52-week low with support coming from few growth drivers like free cash flow before adjusting items and accelerated finance income growth, the market can keep a watch on Marks and Spencer stock going ahead.