Financial market research and analysis

Marks & Spencer will announce the 1H earnings tomorrow; analyst expects a significant drop in the EPS from £0.1942 in H2, 2015 to £0.1336, mostly due to a slump in the general merchandise sales – mainly clothing. Food should temper the fall in sales expected to have declined to £4.957bn in H1,2015 from £5.429bn in the second half of last year. The first half of the year has been difficult for retailers, the deflationary environment is a sizeable challenge.

The improvement in wages is encouraging for the future, whereas the back-to-school sales have barely compensated for a £27mn decline in sales during the month of August. Investors need some more patience as the economic recovery is happening in a quite slow fashion.

While the online operations carry hope, problems experienced by the distribution centre in Castle Donington and Leicestershire at the beginning of the year are a bit worrying.

M&S share price slid by 20% from May to September, the recovery is underway however the share price is still below the major 38.2% retracement level (£522.90p) needed to be cleared for a technical bullish reversal signal. Above this level, an extension to £537.60p is considered, while a failure to surpass £522.90p could signal a consolidation between £500-525 as investors could remain on hold due to slow economic recovery and strengthening pound.

Analysts remain optimistic however with buy/hold/sell recommendation as follows: 15/9/5. Slightly more than half is still willing to buy for a 12-month target price of £567.74p