Marks & Spencer: High-Yield In the Retail Industry Given Balanced Risks in recession year

M&S is a leading British retailer bringing quality, great value food, clothing and homeware to millions of customers around the world. M&S is a chain of department and grocery stores in the United Kingdom: it operates 750 stores across the globe and generates £11.6 bn in revenues.
It focuses on a wide spectrum of apparel, home, furniture, beauty, food, household items and much more. M&S was founded in 1884 by Michael Marks and Thomas Spencer in Leeds. For now, M&S is headquartered in London, England and has a primary listing on the London Stock Exchange and is a constituent of the FTSE 250 Index.

Investment theses:
  • Marks & Spencer has strong financials with stable revenue generation and positive FCF. Macy’s generates over £1 bln in free cash flow over the last year and is expected to be cash positive for the foreseeable future.
  • M&S still has a strong liquidity position despite C&CE reduction compared with last year. Total liquidity is around £1.6 bln including £850 mln Revolver credit facility until June 2025.
  • Refinancing risk is low with £200 mln bonds expiration in next 3 years.
  • Company is on the way to gradual deleveraging. From 2019 FY total debt was reduced by 627 mln or 15%.
  • M&S debt has a low risk, being backed by real estate value and stable earnings.
  • Marks & Spencer top for customer loyalty and satisfaction. The company benefits from strong brand recognition in food and a well-established market position in clothing.

In our view, M&S remains the best option to buy in the bond’s universe in the retail segment. We're overweighting M&S’s bond issue with 9-years duration due to high exposure to interest change.

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