Liberum initiates coverage of M&S, Dixons Carphone and Poundland

Liberum initiated coverage of seven consumer discretionary stocks on Wednesday, including Marks & Spencer, Dixons Carphone and Poundland.

The brokerage highlighted a preference for companies with structural growth and margin upside supported by self-help.

“Balance sheet strength and dominant market share also provide a degree of protection from tougher economic conditions. In a world of low-to-no inflation we believe pricing power is critical. For those companies that offer one or a number of these characteristics we are prepared to pay a high multiple.”

It started M&S at ‘sell’ with a 350p price target, saying that despite strength in food, general merchandise remains an impediment to growth.

The brokerage said that while it was encouraged to see a new experienced retailer in charge, any changes could take 18 months to reflect in sales and profits.

“While the valuation is not challenging we see too many structural concerns to give us confidence that M&S can grow returns,” it said.

Liberum initiated Dixons Carphone at ‘buy’ with a 510p price target.

It noted strong underlying earnings momentum and said merger synergies were being realised ahead of plan, with upside risk to the company’s targeted £80m of benefits.

The brokerage started Poundland at ‘hold’ with a 160p price target.

It said the integration of 99p stores should deliver £25m incremental EBITDA uplift over the next two years, but is causing short-term disruption.

At 1536 BST, M&S shares were up 1.8% to 445.40p, Dixons was 2.5% higher at 422p and Poundland shares were down 0.7% to 147.95p.