JPMorgan upgrades Marks & Spencer to ‘overweight’

The bank said it has looked at elasticity to real clothing price changes over the long run in an effort to better forecast volumes in a positive real wage environment.

"Our bull case, applying elasticity of -0.8 as witnessed in the early 2000s - a time when there was consistent deflation in the UK clothing market - would imply value growth in the UK clothing market of circa 3% in 2024," it said.

"If we were to instead apply the -0.4 elasticity witnessed in 2019, this would imply growth of +1%. We set the mid-point of +2% as our 2024 forecast, in line with the average value growth in the UK clothing market in the five years prior to the pandemic."

JPM noted that the year has started below this and said investor expectations are higher than its forecast.

In this context, it prefers to own the retailer where share gains are highest, expectations are lowest, and valuation least demanding.

"Despite the already strong recovery in the Marks & Spencer shares, the stock still ticks all three boxes, and we upgrade to OW," it said.

JPM said evidence of sustainable share gains at Marks & Spencer is attractive.

M&S is leading on year-on-year share gains, taking +50bps in the latest data, well ahead of Primark +20bps and Next flat, it said.

"Marks & Spencer has demonstrated the biggest positive inflection in market share coming out of the pandemic (improvement in trend of +230bps). Combined with more to go for in mens and kidswear, along with compelling sales uplifts from store renewals, we see recent gains as sustainable."