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Next: Try this upgrade for size

Next shareholders are 12% better off this morning, helping Marks & Spencer (+4.75%), after another very welcome upward revision to guidance, this time for both sales and profit.

Having already been narrowed from ‘-3.5% to +0.5%’ to ‘-3% to +0.5%’ in early August, the revised range for full-year sales growth is now a much more attractive ‘-2% to +1.5%’. In turn this has allowed expectations for pre-tax profits to be nudged higher, from £680-740m to £687-747m, and surplus cash flow from £307m to £310m. The latter increases the likelihood of over £50m being available for a supportive share buyback on top of two remaining 45p special dividends

Shareholders may even be wondering whether today’s upgraded guidance figures are conservative, destined for a beat to ensure a 2016-17 run of downgrades is water under the bridge. Especially with an earlier than usual arrival of cooler weather that could kick-start the run-in to the key Christmas period via increased sales of bigger ticket heavier Autumn/Winter items.

First half performance was poor to say the least with Retail profits -33.3% on Retail Sales -8.3%, however, this was in line with already cautious guidance. Encouraging, less challenging trends over the last three months (directory sales growth even stronger in Q2) has left management confident enough to be more optimistic about the rest of the year. This bolsters revived summer bullishness towards the shares (despite a still squeezed UK consumer).

Today’s news has helped the shares break above 11-month support-turned-resistance at 4500p. Perhaps exacerbated by panic among fresh short positions (now 6.1% short interest vs. 5.1% in early Aug) watching the shares make a fresh 2017 high just shy of £50. Even better is this breakout potentially signalling a bullish technical pattern (2017 inverse head & shoulders reversal) that could take the shares all the way back to last September’s highs of 5700p. Might the shares have another potential 15% upside in them?

Mike van Dulken, Head of Research, 14 Sept 2017

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This research is produced by Accendo Markets Limited. Research produced and disseminated by Accendo Markets is classified as non-independent research, and is therefore a marketing communication. This investment research has not been prepared in accordance with legal requirements designed to promote its independence and it is not subject to the prohibition on dealing ahead of the dissemination of investment research. This research does not constitute a personal recommendation or offer to enter into a transaction or an investment, and is produced and distributed for information purposes only.

Accendo Markets considers opinions and information contained within the research to be valid when published, and gives no warranty as to the investments referred to in this material. The income from the investments referred to may go down as well as up, and investors may realise losses on investments. The past performance of a particular investment is not necessarily a guide to its future performance. Prepared by Michael van Dulken, Head of Research

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