M&S shares have further to run, says Shore Capital

The surprise trading update reported a strong first 19 weeks of the first half of the year, with like-for-like clothing and food sales up 6% and 11%, respectively.

After having already raised its pre-tax profit estimate by 6% in early August, Shore Capital said it was lifting it again by a further 9% to £550m.

"Whilst keeping our forecast feet firmly on the ground, the business is outperforming currently drifting upwards market consensus of £486m," said analysts Clive Black and Darren Shirley in a research note.

"With good Food sales, working capital is likely to be beneficial at the moment, whilst firmer Clothing & Home margins, we sense the key driver of the recent stronger profit growth, are likely to make for a healthy flow-through into free cash flow as well, with capital expenditure budgets well-set."

Following its changes to forecasts, Shore Capital said the stock is trading on 11 times forward earnings.

"We sense that 13.5x PER [price-to-earnings ratio] would be an appropriate staging post to assess whether the present M&S performance cycle has legs, implying a share price of c250p."

The shares were up 7% at 219.5p by 1024 BST.