Marks and Spencer

Marks and Spencer (LSE: MKS) is a major British multinational retailer that sells clothing and beauty, home, and food products. This week, three director dealings were carried out. A large number of shares were received in lieu of a cash dividend, but a portion was sold to cover tax and national insurance obligations.

• Name: Stuart Machin
• Position of director: Chief Executive Officer
• Nature of transaction: Free shares
• Date of transaction: 22 June 2022
• Amount received: 203,120 @ nil
• Total value: N/A

• Name: Stuart Machin
• Position of director: Chief Executive Officer
• Nature of transaction: Sales of shares to cover tax and national insurance liabilities
• Date of transaction: 22 June 2022
• Amount sold: 99,121 @ £1.37
• Total value: £135,805.68

• Name: Sacha Berendji
• Position of director: Property, Store Development, and IT Director
• Nature of transaction: Free shares
• Date of transaction: 22 June 2022
• Amount received: 138,115 @ nil
• Total value: N/A

• Name: Sacha Berendji
• Position of director: Property, Store Development, and IT Director
• Nature of transaction: Sales of shares to cover tax and national insurance liabilities
• Date of transaction: 22 June 2022
• Amount sold: 67,399 @ £1.37
• Total value: £92,343.37

• Name: Paul Friston
• Position of director: International Director
• Nature of transaction: Free shares
• Date of transaction: 22 June 2022
• Amount received: 131,691 @ nil
• Total value: N/A

• Name: Paul Friston
• Position of director: International Director
• Nature of transaction: Sales of shares to cover tax and national insurance liabilities
• Date of transaction: 22 June 2022
• Amount sold: 62,264 @ £1.37
• Total value: £88,048.11

Cranswick

Cranswick (LSE: CWK) is a leading UK food producer and supplier of fresh and premium food products. It’s most famous for its meat products. Four directors opted to exercise their share options this week. However, they then proceeded to sell portions.

• Name: Mark Bottomley
• Position of director: Chief Financial Officer
• Nature of transaction: Free shares
• Date of transaction: 27 June 2022
• Amount received: 31,800 @ nil
• Total value: N/A

• Name: Mark Bottomley
• Position of director: Chief Financial Officer
• Nature of transaction: Sale of shares
• Date of transaction: 27 June 2022
• Amount sold: 16,379 @ £30.82
• Total value: £504,768.02

• Name: Adam Couch
• Position of director: Chief Executive Officer
• Nature of transaction: Free shares
• Date of transaction: 27 June 2022
• Amount received: 48,100 @ nil
• Total value: N/A

• Name: Adam Couch
• Position of director: Chief Executive Officer
• Nature of transaction: Sale of shares
• Date of transaction: 27 June 2022
• Amount sold: 24,775 @ £30.82
• Total value: £763,515.95

• Name: Jim Brisby
• Position of director: Chief Commercial Officer
• Nature of transaction: Free shares
• Date of transaction: 27 June 2022
• Amount received: 31,800 @ nil
• Total value: N/A

• Name: Jim Brisby
• Position of director: Chief Commercial Officer
• Nature of transaction: Sale of shares
• Date of transaction: 27 June 2022
• Amount sold: 16,379 @ £30.82
• Total value: £504,768.02

• Name: Chris Aldersley
• Position of director: Chief Operating Officer
• Nature of transaction: Free shares
• Date of transaction: 27 June 2022
• Amount received: 26,300 @ nil
• Total value: N/A

• Name: Chris Aldersley
• Position of director: Chief Operating Officer
• Nature of transaction: Sale of shares
• Date of transaction: 27 June 2022
• Amount sold: 13,546 @ £30.82
• Total value: £417,460.628

HomeServe

HomeServe (LSE: HSV) offers low-cost home warranty and home repair options. It markets itself as the solution to expensive and inconvenient emergency home repairs. Three massive director dealings happened earlier in the week, as shares were awarded to these directors based on performance conditions.

• Name: David Bower
• Position of director: Director
• Nature of transaction: Free shares
• Date of transaction: 27 June 2022
• Amount received: 21,119 @ nil
• Total value: N/A

• Name: David Bower
• Position of director: Director
• Nature of transaction: Free shares
• Date of transaction: 27 June 2022
• Amount received: 10,190 @ £11.69
• Total value: £119,121.10

• Name: Tom Rusin
• Position of director: Director
• Nature of transaction: Free shares
• Date of transaction: 27 June 2022
• Amount received: 30,619 @ nil
• Total value: N/A

• Name: Tom Rusin
• Position of director: Director
• Nature of transaction: Free shares
• Date of transaction: 27 June 2022
• Amount received: 11,815 @ £11.69
• Total value: £138,117.35

• Name: Richard Harpin
• Position of director: Director
• Nature of transaction: Free shares
• Date of transaction: 27 June 2022
• Amount received: 34,911 @ nil
• Total value: N/A

Types of shares in a SIP

To provide context, there are a few types of shares within a company’s share incentive plan (SIP). A SIP is an employee plan for companies within the UK to flexibly award equity to employees. Publicly listed companies normally exercise this option because it’s tax-efficient for both the employer and its employees.

In this instance, all the director dealings above occurred with free shares. These shares were acquired by directors under their companies’ share plans. These were either a restricted share plan (Marks and Spencer), or incentive plans (Cranswick and HomeServe).

Share award schemes give employees actual shares rather than share options. The value of shares given to directors here is treated as employment income. This means that it may be subject to tax and national insurance contributions. That is unless the directors opt for an HMRC-approved share scheme, which has its own rules and requirements. Incentive plans give directors shares when they hit certain performance targets. For HomeServe directors, the awards were subject to the company’s earnings per share.

The post Director dealings: Marks and Spencer, Cranswick, HomeServe appeared first on The Twelfth Magpie.

More reading

• FTSE 100 to surge to 11,668! 2 cheap stocks to buy before the rally
• Forget the State Pension. Here’s how to target real retirement wealth!

John Choong has no position in any of the shares mentioned. The Motley Fool UK has recommended Tesco. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

Marks and Spencer (LSE: MKS) shares are down 40% this year. Despite that, the retailer reported excellent numbers in its most recent full-year results, with plenty of promise for the future. As such, I think a closer look at the company is warranted.

Hungry for more

After years of declining profit margins, Marks and Spencer launched its latest turnaround programme in 2020 under the Never the Same Again name. This bid to improve the brand’s image and business operations looks like it might be working. The FTSE 250 firm has posted an excellent recovery since, with improvements in customer perception of the M&S brand. As a result, M&S Food sales grew 10.8% year-on-year, while expanding its market share from 3.4% to 3.6% over a three-year period. This was also helped in part by its key partnerships with Coca-Cola‘s Costa Coffee and Ocado.

Additionally, the firm saw its operating margins improve in the second half of its financial year. Even so, I was impressed that the board is aiming to further improve its food supply chain through boosting efficiency and cutting costs. Thus, I expect its food prices to become more affordable, allowing it to expand its market share.

Getting the right fit

Marks and Spencer isn’t just its food business, however. One of the main reasons behind its poor past performance can be attributed to the company’s inability to keep up with the times, as far as its struggling clothing offer was concerned.

That being said, the Never the Same Again programme gave a breath of fresh air to the retailer’s clothing segment. Consequently, the division saw its sales figure jump 51.6% on the year and 3.8% against three years ago.

There’s also the positive effect of M&S’s investments in digital. With heavy competition from e-commerce giants and more nimble omnichannel retailers, Marks and Spencer was always going to struggle. However, enhanced investment has made its e-sales more market competitive. In fact, market penetration has almost doubled to 34%. This has been helped by around its 40 clothing brand partnerships. Moreover, the acquisition of Jaeger and The Sports Edit have added even more depth and variety to its offer.

A summer with Marks and Spencer

Since 2018, Marks and Spencer has reduced its debt levels by 12%. What impressed me most though, is its cash position, which has grown by a whopping 455%! Furthermore, profit margins are back to a healthier level of 2.8%, with free cash flow at £1.1bn.

Nevertheless, my concerns of a potential recession impacting sales are shared by the board. Having said that, CEO Stuart Machin stated that its market positioning and business strategy will help mitigate any slowdown. He believes that the company has a strong brand image to help it maintain its market share. He also expects strong tailwinds from travel, leisure, and weddings to keep its sales numbers strong.

Marks and Spencer shares have a price-to-earnings (P/E) ratio of 9. While it’s not seen as a traditional growth stock, it does have an average price target of £1.93. This gives it the potential to rebound by 43% over a one-year period. Therefore, I’ll be capitalising on its low share price and will buy some stock for my portfolio in July.

The post Should I buy Marks and Spencer shares for its growth in July? appeared first on The Twelfth Magpie.

More reading

• FTSE 100 to surge to 11,668! 2 cheap stocks to buy before the rally

John Choong has no position in any of the shares mentioned. The Motley Fool UK has recommended ASOS, Ocado Group, and boohoo group. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

Fast fashion multi-bagger

The penny stock in question is Sosander (LSE: SOS). Providing “a one-stop online shop for style-conscious women who have graduated from price-led alternatives”, the company also boasts brand partnerships with FTSE 100 firm Next, FTSE 250 member Marks & Spencer, and John Lewis. Just like the aforementioned Boohoo and ASOS, Sosander makes full use of data analysis to gauge which products it should prioritise and the best ways of reaching its target audience. 

Despite only being around since 2016, the company was listed on AIM only a year later. Performance since then has been somewhat erratic. For example, the share price went from 45p in September 2018 to just above 5p when the first UK lockdown was announced. However, anyone brave enough to buy this penny stock back when the chips were down will have done extremely well. Since March 2020, the valuation has climbed roughly 560%!

Based on today’s half-year numbers, I think there could be even more upside ahead.

Sales soar at this penny stock

At £12.2m, revenue rocketed no less than 184% in the six months to the end of September. To put this in perspective, that’s more than in the whole of the previous financial year. Gross profit came in at £6.9m — up more than 200% — and gross margin hit a superb 56.5%.

Other positives include the number of active customers over the six months soaring by 41% to over 191,000. This suggests that co-CEOs Ali Hall and Julie Lavington have got their marketing strategy spot on. 

Like many penny stocks, Sosander remains loss-making. However, an EBITDA (earnings before interest, tax, depreciation, and amortisation) loss of just under £1m is lower than the £1.02m seen last year. In other words, things are going in the right direction. In fact, the Wilmslow-based business revealed that it was EBITDA positive in both October and November as shoppers snapped up partywear, outerwear, and knitwear. 

No sure thing

Perhaps unsurprisingly, Sosander stated that it was trading ahead of current analyst expectations for the full year. Unfortunately, the share price is barely up as I type. I think this is most likely due to traders being caught off guard by suggestions that existing vaccines may not be all that effective against the new Covid-19 variant. On another day, the reaction might have been a lot different.

Even so, it’s worth bearing in mind that Sosander is hardly a risk-free proposition. Although the company had seen “no material impact” from supply chain disruption so far, things could easily get worse before they get better. I’m also minded to remember that, pandemic or not, the £75m cap operates in a highly competitive industry where, I imagine, brand loyalty is increasingly hard to secure.

My verdict

No one can say for sure what will happen next with Covid-19. As promising penny stocks go, however, this is definitely one I’ll be adding to my watchlist. If general market sentiment dips again over December, I may just need to make room for Sosander in my portfolio.

The post This penny stock is putting Boohoo and ASOS to shame! Time to buy? appeared first on The Twelfth Magpie.

More reading

• Forget meal deals! Here’s how £8 a day could be worth £357,000
• With a 7% yield, is this dividend share a no-brainer?
• The CMC Markets share price is smashing the FTSE 100 in 2026. Is there an opportunity here?
• With a yield of 6.8% and a P/E ratio of 12.1, is this a dirt cheap FTSE 250 stock to consider?
• Will SpaceX, Nvidia, or Alphabet be the first $10trn stock?

Paul Summers owns shares in boohoo group. The Motley Fool UK has recommended ASOS and boohoo group. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

Profits jump

Fuelled by the recovery from the pandemic and a transformation plan, pre-tax profit and adjusting items came in at £269.4m over the 26 weeks to 2 October. That’s almost 53% up on that achieved over roughly the same period in the pre-pandemic 2019/20 financial year. It’s also above the £205m-£264m range predicted by analysts.

Although hard to ascertain whether growth was down to the company’s efforts to transform the business or the recovery in consumer spending following multiple lockdowns, food sales rose 10.4% over the period. Elsewhere, Marks’s long-derided Clothing and Home (C&H) division recorded a 17.3% rise in full-price sales and increased market share. No less than 34.4% of total sales from this part of Marks and Spencer now come from online.   

It gets better. Looking ahead, the retailer said that trading in the first four weeks of H2 had been “consistent with growth rates reported in Q2 and ahead of plan”. As a result, it expects recent demand “to be sustained in the near term” and is now targeting full-year pre-tax profit and adjusting items to be ahead of previous expectations at roughly £500m.

Contrarian pick

Today’s jump in the Marks and Spencer share price builds on the momentum seen over the last 12 months. In that time (and taking this morning’s move into account), the stock has climbed 87% in value. That’s an excellent result and provides evidence of how potentially lucrative contrarian investing can be.

Despite this recovery, MKS still traded on a valuation of 13 times earnings before traders sat down at their desks this morning. That looks fairly reasonable relative to industry peers. Next, for example, trades on 16 times forecast earnings and lacks Marks’s earnings diversification. It also looks reasonable considering the former’s plan to open 20 new stores and the progress made in reducing its debt pile. This now sits at £3.15bn, down from a little over £4bn in 2019/20.

Regardless of today’s move, the Marks and Spencer share price remains almost 30% below where it stood in 2016. To make matters worse, the company isn’t paying a dividend. Now, I’m more than willing to wait for a stock to recover. Even so, I would prefer to be receiving some form of compensation for my patience in the meantime. For me, this is easily one of the biggest issues with buying MKS stock now.

Unfortunately, the return of payouts looks some way off due to inflationary pressures. Throw in Covid-19-related obstacles, Brexit, supply chain concerns and old-fashioned competition and MKS is far from the home run today’s rise might suggest.

More upside ahead

Based on today’s report, however, it really does feel like this company is starting to get its mojo back. Assuming it has a positive festive period, I’m confident there’s more upside ahead for the Marks and Spencer share price.

Notwithstanding this, it’s clear that I shouldn’t get carried away given the multiple headwinds the company still faces. So, if I were to buy today, I’d definitely ensure that I was suitably diversified beforehand.

The post The Marks and Spencer (MKS) share price is flying! Here’s why appeared first on The Twelfth Magpie.

More reading

• FTSE 100 to surge to 11,668! 2 cheap stocks to buy before the rally

Paul Summers has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

The Marks and Spencer (LSE: MKS) share price was on the front foot this morning, despite the company reporting a huge loss as a result of the coronavirus pandemic. Should investors like me take this as a sign that all the pain is priced in and the shares are finally worth buying?

Big loss

Sure, today’s full-year numbers were never going to be pretty. The closure of high streets and multiple UK lockdowns would never be good news for the 137-year-old, former FTSE 100 firm.

Group revenue came in at just under £9bn for the 52 weeks to 27 March. This was 12% lower than in the previous financial year. MKS’s food sales continued to offset poor performance elsewhere with like-for-like revenue rising 1.3%, supported by its deal with online grocer Ocado. In contrast, revenue from its Clothing & Home ranges plummeted 31.5%.

It gets worse. Profit before tax and one-off costs fell to just £41.6m. That’s a 90% fall from the £403.1m achieved in the previous year. Once those costs are factored in, a pre-tax loss of £201.2m was reported, down from the £67.2m profit achieved in the previous year.  

Contrarian play?

The fact that the MKS share price is rising today can’t make up for the fact that the firm, from an investment perspective, has long been a losing bet, I feel. Over the last five years, its stock has more than halved in value. By contrast, the FTSE 250 that Marks features in is up 31%. In other words, investors could have achieved a far better return by buying a simple exchange-traded fund that tracks the index. But could now be the time to buy?

There are a few reasons to be hopeful. In addition to the reopening of high streets, CEO Steve Rowe’s strategy to transform the company (the Never the Same Again programme) appears to be gathering pace. The deal with Ocado is bearing fruit with M&S products now making up over 25% of Ocado’s average basket. The firm also reported growth of 53.9% in online clothing and home revenue today, helping to justify the decision to close underperforming physical stores. 

However, there are still things that would make me wary as a potential investor. 

Buyer beware

After so many false starts, I remain sceptical that Marks can succeed in attracting shoppers back to its stores. Talk of building “a trajectory for future growth” and making the company “special again” sounds great. However, we’ve been here before. The retailer needs to find and retain a lot of new customers. That’s a big ask.

There are other things I don’t like. Net debt still stands at just over £3.5bn including lease liabilities. Forget having a “strong liquidity position” — why buy M&S when there are online-only operators boasting massive financial war chests and no physical stores to maintain? Elsewhere, operating margins have been woeful for years, as have the returns on capital invested.

In addition to all this, MKS isn’t currently paying dividends. As such, shareholders aren’t being compensated for their patience. To me, this makes the opportunity cost of not investing elsewhere very high.

Bottom line

Today’s share price suggests that a lot of the pain is priced in and that MKS shares might finally worth buying. With so many better options available in the market, however, I’d wait to see signs of real progress before considering adding the shares to my portfolio.

The post Are Marks and Spencer (MKS) shares finally worth buying? appeared first on The Twelfth Magpie.

More reading

• FTSE 100 to surge to 11,668! 2 cheap stocks to buy before the rally

Paul Summers has no position in any of the shares mentioned. The Motley Fool UK has recommended Ocado Group. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

Is my long-held suspicion that the shares are overbought finally ringing true, or is this a mere short-term blip?

Ocado sales soar

This morning’s numbers relate to Ocado’s retail arm — the joint venture it formed with battered former FTSE 100 member Marks & Spencer back in February 2019.

Thanks in part to another lockdown, retail revenue soared 35% over the 13 weeks to 29 November to just under £580m. According to the company, this compares favourably to the normal peaks and troughs experienced before the coronavirus arrived. It also suggests customers have been receptive to the firm’s switch in trading partners, to M&S from Waitrose in September.

Ocado received an average of 360,000 order per week over the period — up 3% from Q4 2019. Despite the additional demand, it was able to achieve “high rates of on-time customer delivery and low rates of substitutions,” according to Retail CEO Melanie Smith. The average order size was £133 — evidence, Ocado believes, that shoppers’ behaviour was continuing to “normalise.“

Priced in?

It seems fair to say Ocado shares have been one of the better FTSE 100 buys in 2020. Those placing the stock in their shopping basket at the beginning of January would be sitting on a gain of around 75%. That’s after taking today’s fall into account! The question is, how much of this good news is now priced in?

Based on this morning’s reaction. I’d say quite a lot, especially as the company raised earnings guidance again today. It now expects full-year earnings to be “over £70m” compared to its previous prediction of over £60m. And yet traders weren’t impressed!

Part of this may be explained by the fuzzy outlook. Within today’s statement, Ocado said sales and earnings growth in the next financial year will depend on how quickly trading normalises. It’s also dependent on when three new warehouses become operational. These are expected to add 40% more capacity to the business.

Market minnow

But is this reaction really that surprising? After all, Ocado is still trading at a loss, due to the huge investment it’s needed to make over the years. As impressive as its operations are, the FTSE 100 company is already valued at over £17bn. That’s the sort of staggering valuation we’d expect from flash (overhyped) US tech stock. Sure, Ocado might utilise market-leading software, but no share is worth buying at any price. 

On top of this, it’s worth remembering Ocado doesn’t operate in a vacuum and the grocery market remains as cut-throat as ever. Depending on how the UK economy fares in 2021, it’s possible more people will switch away from M&S to cheaper options out of necessity.  

It’s not as if Ocado has a commanding presence either. In November, it had just a 1.7% share of the UK market, according to Kantar. FTSE 100 peer Tesco, on the other hand, had 27%. Its valuation is £22bn — only £5bn more than Ocado. 

Considering the above, I’m still giving Ocado shares a wide berth as an investor. For me, there are far better opportunities elsewhere in the market. The bubble may finally be bursting.

The post Ocado shares are falling today. Is this FTSE 100 firm’s bubble finally bursting? appeared first on The Twelfth Magpie.

More reading

• Here are 2 FTSE shares I’m excited about this July — and 1 I’m avoiding
• Can anything save the Ocado share price?

Paul Summers has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

It’s no secret that the now-FTSE 250 business, like many high street retailers, has struggled in recent times. But just how bad has it been as an investment? 

Long term loser

If you’d put £1,000 in Marks on Monday, 22 December 2014, you’d have got 221 shares for your money. For simplicity’s sake, I’m using the price at the end of the day and ignoring the costs of trading here.

Over the last five years, Marks and Spencer’s share price has more than halved in value. So, if you’d done nothing, your stake would now be worth a measly £480.

Admittedly, this shabby state of affairs is improved once dividends are considered. Based on my research, those buying the stock five years ago would have received a total of 90.1p per share to date. A holding of 221 shares would, therefore, have generated a total payout of just over £199. Adding this to the value of the shares now gives a final total of £679, if we assume dividends weren’t re-invested.

A 32% loss over five years? What a shambles!

If only I’d bought…

Marks and Spencer’s woes are all the more ironic when it’s considered that the performance of online grocery specialist Ocado (LSE: OCDO) — a company that the battered retailer purchased a £750m stake in earlier this year — has been so good.

Had you put your £1,000 to work with Ocado rather than Marks five years ago, you’d have a little over £3,000 now. What makes this result even more remarkable is the fact that all this has come purely from share price growth. Ocado doesn’t pay out dividends to its owners. 

So, it’s safer to back Ocado?

Not necessarily. Given that it’s still to generate consistent profits, the £9bn cap is clearly one of the more speculative plays in the FTSE 100 right now. The longer this situation persists, the more likely investors are to bank their gains and move on. Such is the issue with momentum stocks: they’re a great source of profits right up until the point they’re not.

In sharp contrast, expectations around Marks and Spencer have rarely been this low, particularly when it comes to its clothing range. Accordingly, the shares change hands for ‘just’ 12 times earnings.

Whether this valuation turns out to be a bargain will depend greatly on what happens next September when the deal kicks in. Given what it’s paid to use Ocado’s software, it goes without saying that everything must work swimmingly from the outset.

I see no particular reason why this won’t happen. However, one persistent concern I do have is whether it will be able to attract a sufficient number of new customers. Getting those who buy products from Waitrose through Ocado to swap to M&S is one thing, but asking those not already on board to pay more for their food is another. 

Marks next updates the market on 9 January. For the sake of those holding since 2014, I hope it’s good news.  

The post Ouch! Here’s how much £1k invested in Marks and Spencer 5 years ago would be worth now appeared first on The Twelfth Magpie.

More reading

• Here are 2 FTSE shares I’m excited about this July — and 1 I’m avoiding
• Can anything save the Ocado share price?
• FTSE 100 to surge to 11,668! 2 cheap stocks to buy before the rally

Paul Summers has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

High street carnage

Throughout history, the high street has never stood still. Names have come and gone over the years. However, the pace of change seems to have accelerated of late.

Debenhams’ collapse into administration in April was another venerable name to add to a long list of casualties in recent years. Just this week, investors woke up on Monday morning to a seven o’clock announcement that Thomas Cook had entered into compulsory liquidation.

And when the stock market opened an hour later, Marks & Spencer, a stalwart of the FTSE 100 since its inception in 1984, began officially trading for the first time as a FTSE 250 stock, following its ignominious demotion from the top index.

Short-staffed at the gene pool

Also yesterday, M&S made a shock announcement that chief financial officer Humphrey Singer has decided to leave the business after just 14 months. This follows the departure a few months ago of Jill McDonald less than two years after her appointment as managing director of Clothing and Home.

Singer will be sticking around while a successor is found, and chief executive Steve Rowe is handling clothing and home pro tem. But it leaves M&S having to find effective replacements for two key roles at a time when its attempting probably the most radical and wholesale transformation in its history.

No appeal

I’ve previously described M&S’s £750m move into a joint venture with online grocer Ocado as expensive, and something of a desperate and high-risk ‘Hail Mary pass’. A number of analysts have expressed a similar view, and I’m wondering if Singer’s departure signals there was also conflict within M&S about the Ocado deal.

Either way, the company’s 187p share price, sub-10 earnings multiple and above-6% dividend yield hold no appeal for me. Structural headwinds, risks and earnings forecast to skid lower both this year and next make it a stock to avoid in my book. 

Attractive sector and business

Alliance Pharma operates in an attractive defensive sector and with a low-risk business model. It owns or licenses the rights to more than 90 pharmaceuticals and consumer healthcare products, and generates sales in more than 100 countries.

Many of its products are sold in a limited number of local markets and require little or no promotional investment. However, it’s also building a portfolio of what it calls  International Stars — brands with significant international or multi-territory reach. Currently numbering five, these brands benefit from promotional investment and central strategic oversight.

Good value

The group today reported first-half revenue growth of 21% (including organic growth of 10%), as International Star brands, led by scar treatment product Kelo-cote, continued to perform strongly. Underlying earnings increased 15% and the board lifted the interim dividend 10%.

At a share price of 73.75p (2% up on the day), Alliance trades at 14.6 times current-year forecast earnings with a prospective 2.2% dividend yield. This looks good value to me for the strong growth on offer and with the company eyeing further “carefully targeted acquisitions over the next few years.” I rate the stock a ‘buy’.

The post Why I think this small-cap stock could trash the Marks & Spencer share price appeared first on The Twelfth Magpie.

More reading

• FTSE 100 to surge to 11,668! 2 cheap stocks to buy before the rally

G A Chester has no position in any of the shares mentioned. The Motley Fool UK has recommended Alliance Pharma. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

According to my calculations, the two are currently the bottom-ranked FTSE 100 companies. They’re poised to be pushed out of the blue-chip index by FTSE 250 firms Polymetal International and Hikma Pharmaceuticals, which both occupy automatic promotion slots.

Do I think now is a good time to buy shares in any of the four companies?

No spark at Marks

Marks & Spencer has been in the FTSE 100 ever since the index was established in 1984. It narrowly escaped demotion at the last quarterly review, but I think it would take a miracle for it to dodge the bullet this time around.

The sinking value of the company, and the humiliation of its demise from blue-chip bellwether to just another mid-cap retailer, is symbolic of the troubles on the UK high street, but also testament to M&S’s repeated failures to successfully adapt its business over the last two decades.

It may have a single-digit P/E and high dividend yield, but the bottom line is this is a structurally challenged company in a structurally challenged sector. Is it a stock I need to own? No, has been my answer for a long, long time. And I continue to see it as one to avoid.

Mad cap

Arguably, Centrica, which also trades on a low P/E and high yield, is a similarly challenged company. However, it’s a utility, not a retailer, and while it has some similarities with M&S in the consumer-facing part of its business, the main challenges it faces are rather different.

Regulatory headwinds, notably a price cap on certain tariffs imposed on energy companies earlier this year, have had a damaging impact on profitability in the sector, and even on the viability of some companies. History suggests heavy-handed regulatory price caps, which produce market distortions and unintended disincentives, get discarded sooner or later. And for this reason, I wouldn’t entirely write Centrica off.

For sure, it faces a host of challenges, but I think the business can survive and recover when the madness and pernicious consequences of price caps become apparent, and policy is changed. Personally, I wouldn’t buy the stock today, but if I owned it I’d be inclined to continue to hold.

Two I’d buy

I named gold miner Polymetal as my top share for 2019 at the start of the year. Despite the strong rise that’s taken it to the brink of entry into the FTSE 100, I still see value in the stock and rate it a ‘buy’. It has a low double-digit P/E and forecast high-teens earnings growth, as well as a decent 4% dividend yield.

Generic medicines firm Hikma is more highly rated, on a high-teens P/E and with a sub-2% dividend yield. The company has yo-yoed in and out of the FTSE 100, but I think the long-term outlook for the business is so promising that it’ll become a fixture in the top index in due course. As such, I also rate this one a ‘buy’.

The index changes announced by the FTSE on Wednesday will take effect from Monday 23 September.

The post Marks & Spencer and Centrica set for FTSE 100 exit. Time to buy? appeared first on The Twelfth Magpie.

More reading

• FTSE 100 to surge to 11,668! 2 cheap stocks to buy before the rally

G A Chester has no position in any of the shares mentioned. The Motley Fool UK has recommended Hikma Pharmaceuticals. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

I’m always on the hunt for an income bargain, so I’ve been taking a fresh look at each firm. Are these FTSE 100 stocks too cheap to ignore, or should we steer clear of this cut-price merchandise?

Out of fashion

Marks & Spencers’ long-running problems have been defined by the company’s struggle to get to grips with its clothing business. Another chapter was added to this saga on Thursday afternoon when M&S announced the departure of Clothing and Home boss Jill McDonald.

Press reports today have suggested McDonald was asked to leave. Perhaps this isn’t surprising after the company admitted during the final quarter of last year, it “sold out of a number of fast selling lines.”

Running out of popular items is a big mistake for retailers. It’s one that M&S can’t afford to make. This maybe why McDonald’s responsibilities will be taken over by CEO Steve Rowe, an M&S lifer with deep expertise in this sector.

The right time to buy?

Marks & Spencer does face real problems. The group’s £750m food joint venture with Ocado isn’t without risk, either.

But as I’ve said before, I believe there’s still some value in this business. The group reported sales of £10.3bn last year and generated underlying free cash flow of £589m, according to my calculations. That gives the shares a free cash flow yield of about 15%. Pretty good, if it’s sustainable.

That’s the crucial point. Can Rowe rebuild the group’s profit margins and return M&S to growth? Or will profits continue to decline as the firm struggles with an outdated store estate and an ageing brand?

The shares currently trade on about 10 times forecast earnings with a dividend yield of 5.6%, after this year’s cut. If Rowe can deliver the kind of improvements he’s aiming for, then I think MKS shares could be worth a look at this level.

Keep it simple

Lloyds Bank doesn’t seem to be able to get much love from investors. Shares in the group have drifted down from about 85p five years ago to just 58p at the time of writing.

As the stock has been falling, Lloyds’ profits have been rising. So has the bank’s dividend. So what’s the problem? One risk is that the bank’s profits depend heavily on the UK consumer economy, thanks to its £264bn mortgage book and £18bn credit card business. Alongside this, it has over £15bn in motor finance and has lent £32bn to small- and medium-sized businesses.

If the UK economy heads into recession, some of these loans may fall into arrears, causing profits to fall. On the other hand, the economy may not be about to crash. And even if it does, Lloyds’ balance sheet is much stronger than it used to be, thanks to post-2009 regulatory changes.

Taking all this into account, I think Lloyds 6% dividend yield looks a decent buy-and-hold choice for income investors.

The post Could Lloyds and Marks & Spencer be FTSE 100 bargains of the year? appeared first on The Twelfth Magpie.

More reading

• Is there any value left in Lloyds shares now they’re over £1?
• Prediction: this UK growth stock will outperform Lloyds shares over the next 5 years
• Barclays, NatWest or Lloyds shares: which is the better pick for a UK retirement portfolio?
• Here’s how much I think Lloyds shares will be worth by the end of 2027
• How to target a tax-free passive income of £1,275 a month on top of your State Pension

Roland Head has no position in any of the shares mentioned. The Motley Fool UK has recommended Lloyds Banking Group. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.