UK retail is a place to "remain exposed to" analysts say

UK retail is a place to "remain exposed to" analysts say

UK retailer Marks & Spencer is in a more advantageous position to other retailers in light of the emergency budget, according to analysts.

The 2010 budget by the UK coalition government on Wednesday (23 June) revealed a VAT increase to 20% from January 2011 and measures that are expected to raise additional cumulative net tax revenues of GBP8.2bn for public coffers by fiscal year 2014/15.

However, Luca Solca, an analyst with Bernstein Research believes the budget seems poised to act as a "nominal headwind" for general UK retail.

“M&S would seem in a slightly advantaged position in light of the budget's features, as most pensioners (an M&S mainstay demographic, as the company captures a 20% A&F share of consumers over 55 years) would likely not see dramatic falls in net income,” Solca said.

And while the VAT increase is expected to lower UK consumers’ disposable income, Solca believes this should be largely offset by the ongoing low interest rate environment.

“Concerns over the impact of changes in VAT on volume expenditure in all retail categories…often seem overstated. This neutral effect on pensioners should provide a distinctive tailwind for M&S and partly mitigate the impact of this budget's negatives for the stock,” Luca insisted.

Luca added that any risks may come from subdued like-for-like growth or if the retailer’s new CEO Marc Bolland settles on a plan with “too much emphasis on growth and capex” after his strategy review.

Nonetheless, Luca added: “We continue seeing UK retail as a place to remain exposed to.”

Luca rated M&S ‘outperform’ with a target price of 410 pence.