Credit Suisse cuts targets on M&S and Next

Analysts at Credit Suisse slashed their target prices for Marks&Spencer and Next stock on the back of expectations for lowering economic growth in the UK and weakness in sterling.

The Swiss broker said that following the referendum result it now expected British GDP to shrink by 1.0% in 2017 while its economists expected cable would fall as far as 1.20.

It pointed out the recent experience of Swedish retailer H&M, whose trading was buffeted by weaker demand together and a circa 20% adverse move in euro/dollar, which combined drove a greater than 350 basis point drop in margins at its European business.

Analysts Pradeep Pratti and Simon Irwin cut their target price on M&S from 370p to 340p and on Next from 5,200p to 4,950p.

In the case of M&S they emphasised the fashion retailer's high operational leverage and poor trading momentum, whereas at Next Brand margins were now seen dropping by 280 basis points over the next three years.

Their reiterated their 'underperform' investment recommendation on M&S while Next was kept at 'neutral'.

Trading at Kingfisher on the other hand was expected to remain "resilient". Weakness in sterling should "at least offset" any demand weakness.

Pratti and Irwin said stock in the owner of B&Q remained their 'top-pick' in the sector and maintained their 'outperform' recommendation and 425p target price.

B&M's target price was lowered from 360p to 350p and the recommendation on the shares maintained at 'outperform' given its "relatively defensive qualities" as a discounter.