Broker says M&S shares undervalued as group unveils £340 million logistics hub

Marks and Spencer Group PLC (LSE:MKS) has committed £340 million to a new 1.3 million sq ft automated food distribution center in Northamptonshire, scheduled to open in 2029. Broker Shore Capital views M&S shares as "materially undervalued" following this "landmark" investment, which is expected to lower costs, improve product availability, and support the retailer's ambition to double its food business. While short-term earnings will be impacted by one-off costs, Shore Capital anticipates momentum to resume by 2027, underscoring the strategic importance of this facility for M&S's strong food division and broader estate reshaping.

Analysis

Marks and Spencer Group PLC is undertaking a significant capital expenditure with its £340 million investment in a new 1.3 million square foot automated food distribution center, slated to be operational by 2029. This move is a core component of its strategy to double the size of its high-performing food business, which currently holds over 4% of the UK market, by lowering costs and improving product availability. According to broker Shore Capital, this 'landmark' project reinforces the view that M&S shares are 'materially undervalued' compared to key competitors such as Next and Tesco. While the investment will create a near-term drag on earnings in the current financial year due to one-off costs, momentum is forecast to resume by 2027. The project aligns with M&S's broader transformation, which includes reshaping its store estate by 2028 and incorporating strong ESG credentials like an EPC A+ rating and solar power into new infrastructure.

Key Decisions for Investors

• Investors should look past the short-term earnings impact from one-off costs and focus on the long-term strategic benefits of the logistics hub, which is designed to enhance efficiency and support significant growth in the food division.
• Consider re-evaluating M&S's valuation in light of Shore Capital's 'materially undervalued' thesis, as this tangible investment in automation and scale provides a clear catalyst for future margin improvement and market share gains.
• Closely monitor the execution of the company's parallel strategy to reshape its store estate by 2028, as the success of the new distribution center is contingent upon having a modernized and expanded retail network to service.