As short sellers ambush UK icon M&S, the value case hardens

Bloomberg

As short sellers swoop on Marks & Spencer Group Plc, value investors are pinning their hopes on a man with a history of turning around struggling businesses.
Archie Norman, 63, a former lawmaker who joined the iconic British retailer as chairman in September, is credited with leading the Asda supermarket chain from near bankruptcy in the early 1990s to a $9.5 billion sale to Walmart Stores Inc. in 1999. Shares in broadcaster ITV Plc rose more than 300 percent during Norman’s six-year tenure as chairman there.
Some investors have faith he can have a similar influence on M&S, which traces its roots to a market stall in Leeds in 1884 and is best known for its blend of own-brand food
and clothing.
“I think he recognises that there are issues in the business and that those issues need dealing with,” said Martin Walker, a fund manager at Invesco Perpetual who holds M&S shares in the firm’s UK Growth Fund and UK Focus Fund. “That may lead to some volatility in terms of business in the next 12, 18, 24 months, but ultimately it makes the business potentially worth a lot more in the longer term.”
Doubters prevail. With short interest hovering near a record high, M&S is among the most-shorted stocks in the FTSE 100 Index alongside grocery peers J Sainsbury Plc and Wm Morrison Supermarkets Plc, according to IHS Markit Ltd. data.
Much-younger online rival Asos Plc overtook M&S in terms of market capitalisation in November 2017.
M&S is among UK retail stocks that Simon Murphy, a fund manager at Old Mutual Global Investors, says he’s cautious about. Credit Suisse analyst Pradeep Pratti said the retailer looks increasingly like “ a value trap” in a Jan. 24 note, lowering his recommendation on the stock to underperform.
Supermarket chains have spent years struggling against the growth of discount grocers, and department and toy stores are taking hits from Amazon.com Inc. as more shoppers switch to online shopping. Compounding their predicament in 2017 was the pound’s decline, which pushed up inflation amid stagnant wage growth.
Invesco’s Walker, who hunts for value stocks, says M&S has enough cash to fix the business and its dividend is secure. He sees the consumer environment improving later this year. M&S’s perception as an iconic British brand also counts in its favour, he said. “There are very few businesses in the UK that, if they cease to exist tomorrow, the population of the UK would be upset about,” said Walker, who is based in England.