M&S and Morrisons backed by Deutsche

The improving fortunes of Marks & Spencer and supermarket group Morrisons received further recognition in the City today.

Investment house Deutsche Bank raised its profits forecasts for M&S and said the chain had the potential to turn its attention towards expanding store space after a prolonged period of restructuring.

A separate note from Deutsche also took a positive stance on the supermarket sector and Bradford-based Morrisons in particular.

The bank changed a “hold” rating on Morrisons to a buy and increased long-range forecasts in the belief that infrastructure costs could show significant improvement.

Morrisons has faced difficulties since the acquisition of larger rival Safeway, but surprised the City in early August by revealing like-for-like sales jumped 6.1% in the previous nine weeks.

Shares are at a high for the year as the sales update added to optimism among investors following the appointment of Marc Bolland as chief executive this month.

With half-year results due on Thursday, the note from Deutsche helped push Morrisons shares up by 2% at one point today.

Deutsche also made a modest upgrade to forecasts on Sainsbury’s for this year but said it continued to favour Tesco as the long-term pick from the sector.

Analyst James Collins cited the retail giant’s superior growth prospects at home and abroad, although a strong share price performance in recent weeks meant the bank cut its rating on the stock to hold from buy.

Deutsche also said it was an “opportune” time to buy M&S shares, adding that interims on November 7 were likely to confirm strong sales and profits progression.

Analyst Rod Whitehead said he believed several new product and marketing initiatives in both food and general merchandise – coupled with modernisation efforts – would drive premium sales growth and market share recovery.

He is also optimistic about margins and said that a review of the M&S property portfolio will conclude that both food and general merchandise space can be increased by 40%. Internet offerings and international expansion could also boost growth, Mr Whitehead added.

Deutsche lifted its price target for M&S from 675p to 750p, adding that the stock was its top buy recommendation in European general retailing. M&S shares were close to their opening mark at 623.5p today.

M&S chief executive Stuart Rose said earlier this year that the improved performance at M&S would not amount to a “recovery” unless profits and sales were still growing at Christmas.