Marks & Spencer and Next results surpass expectations

Marks & Spencer’s first-half adjusted profit of £298.3m came in 5% ahead of consensus and chairman Sir Stuart Rose made bullish noises about clothing market share and improvements in food.

UBS, which has a neutral stance on the stock, labelled the results “solid” and observed: “Current trading is good as weak comparatives are lapped in October. International delivered a surprise £66m profit compared to our £55m forecast, which is encouraging for longer-term growth prospects.”

Shore Capital, advising hold, cautioned: “While we suspect M&S will be benefiting from softer comparables along with the rest of the industry, we continue to believe that structural and operational issues may hamper a recovery and end in industry underperformance.”

Shore rated Next a buy after it beat third-quarter expectations. The broker said: “Management has done much to introduce newness in its offer and upgrade its store estate over the last couple of years. This has helped deliver a robust performance in incredibly difficult trading conditions.”

Tesco was popular after broker ING issued a bulky note arguing the case for a takeover of Dutch retailer Ahold by the UK powerhouse. ING said an acquisition would help realise Tesco’s ambition to carve out a position in the US, where Ahold has substantial operations. ING noted: “The US market is too big for Tesco to ignore, yet any attempt to increase the scale of Fresh & Easy could prove very risky. Ahold should be viewed as a one-off opportunity to acquire an undervalued asset at a low point in the US consumer cycle.”

Tesco was also popular with Oriel, which switched its rating from hold to buy and downgraded Sainsbury’s from buy to hold. The broker explained: “Clubcard 2 and an aggressive marketing campaign have clearly done the trick to return Tesco to the upper echelons of the like-for-like league table and, while Sainsbury’s should benefit from trading up, we think that it has lost some of its relative verve of late.”

In the troubled sportswear sector, JJB pulled off its £100m fundraising while Blacks Leisure unveiled CVA plans following last week’s results.

Debenhams’ shares were down as finance director Chris Woodhouse sold a £7.2m tranche. Broker Singer rated the retailer a buy and said a meeting with management on Monday reaffirmed the investment case. The broker thought Next’s update might provide a catalyst for Debenhams’ shares, which it said trade on “what we believe to be an unsustainably low rating”.