Marks and Spencer (LON:MKS) - one of many UK retailers that I had previously put on my "avoid" list for macro and industry-specific reasons - the tough environment for UK bricks-and-mortar clothing retailers on the back of a shift to online, benefiting ASOS (LON:ASC), Boohoo.Com (LON:BOO) and Next (LON:NXT); plus the downbeat outlook for UK consumers as UK house prices slow down and the Bank of England raises interest rates.
But Paul Scott's comments on Marks and Spencer (LON:MKS) post Q4 results piqued my interest, particularly as sell-side analysts remain bearish on M&S's outlook - 6 Buys, 10 Holds and 10 Sells out of 26 covering analysts.
There is no doubt that Marks and Spencer (LON:MKS) shows up as a classic value stock (by the numbers); the question is, as always with potential value stories, is it a Toys R US-style value trap condemned to slow and inexorable decline, or is the current restructuring plan including widespread store closures the catalyst for the shares finally?
So I have created long-term dividend yield and enterprise value to sales charts for M&S, to put the current valuations in the context of a few business cycles, more than can be seen in Stockopedia's database.
Enterprise Value to Sales: at 0.61x at the long-term lows
As you can see, the EV/Sales ratio for this retailer is right at the long-term lows, well below the 0.82x average over the last 10 years post Financial Crisis. In fact, right now this valuation measure is as low as the lowest point post-crisis in late 2008!
Dividend yield: at 6.1%, has almost never been higher in the past
Looking back as far as 1990, there have only been 2 occasions when M&S's dividend yield has been higher, in 2000 during the TMT bubble when old-economy stocks were very much out of fashion, and in 2008-09 post crisis (and deep recession).
So decide for yourself whether the current restructuring plan represents a true value catalyst or not; but the value seems very much to be there on a historical basis judging by these two particular metrics. And of course, as long as M&S can…
