Good morning,

I didn't get round to commenting on Marks and Spencer (LON:MKS) results yesterday, which a reader asked me to do. I haven't looked at MKS properly for a long time, so thought it would be interesting. So here goes, this is what I wrote last night;

Marks and Spencer (LON:MKS)

Share price: 307p (up 5.2% yesterday, on results day)
No. shares: 1,624.8m
Market cap: £4,988m

Results for 52 weeks ended 31 Mar 2018

It would take too long to comment on everything, so here are just some interesting points that I jotted down whilst reading the results.

  • Revenue up slightly, 0.7%, to £10,622m
  • Adjusted profit remarkably resilient, at £580.9m - down only 5.4% in a market where much of the competition is seriously struggling.
  • Adjusted free cashflow is a stand out item, at £582.4m - remember this is after capex, so MKS remains a highly cash generative business.
  • Huge adjustments though, covering various reorganisational costs, totalling £514.1m - so how you view these results depends on whether you accept the adjustments or not.
  • Adjusted EPS of 27.8p = PER of 11.0
  • Net debt is £1.83bn - large, but I think MKS has a substantial freehold property portfolio. I would normally disregard debt that relates to freehold properties

Property - the 2017 Annual Report shows "land & buildings" with a book value of £2,588m at 1 Apr 2017. The word "freehold" is not mentioned anywhere in the Annual Report. I've googled it, and this article from 2013 suggests that 65% of MKS's retail space was freehold. If anyone has more information on what MKS's freehold properties might be worth, then please post it in the comments below.

MKS seems to be permanently reorganising, but the narrative with yesterday's results sounds impressive for its directness - admitting that many things are wrong with the business, but can be fixed.

International profit has more than doubled to £135.2m, due to exiting from loss-making sites/countries, and forex benefits. That's an impressive improvement. I wonder what profit growth might be possible from overseas expansion?

Store closures - this is being accelerated, and will result in 25% of the "legacy" clothing and home space being closed. Whilst brutal, this should considerably boost future profits, I imagine. It also means there will be less competition in many…

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