It’s strange to think of Marks & Spencer (LSE: MKS) as a FTSE 250 company, but sadly that’s what it is now that its falling market cap has seen it expelled from London’s top index.
By September, Marks’ shares were down 34% on the year, but since then there’s been a gradual recovery – at the time of writing, we’re looking at an overall drop of 13% for 2019. That’s far from the worst performance in the mid-cap index, but it seems quite humbling for a once-proud FTSE 100 company.
M&S has kept on paying decent dividends throughout, but had you bought the shares five years ago, you’d still be sitting on a loss of around 30% even with the dividend cash. Not nice.
Time to buy?
But with the uptick in recent months, is the slump finally over?
The biggest problem with Marks & Spencer is its appallingly bad record at finding clothes that people actually want to be seen in. When I visit, the men’s clothing always looks not cheap enough for bargain hunters, not sharp enough for upmarket dressers, and not fashionable enough for modern young men.
The company’s purchase of a £750m stake in Ocado does change the equation considerably, though it was not without controversy – the price slumped when shareholders digested the news. How it’s going to turn out is anybody’s guess, but M&S owns a chunk of a stock that I think is overvalued.
I’m tempted to think (hope?) that M&S has finally passed the bottom. But I’ve thought that many times in the past 10 years, and the shares are still only worth about a quarter of their 1997 all-time peak. I fear even worse to come.
Strike trouble
Royal Mail Group (LSE: RMG) shares continued their fall in 2019, losing an additional 17% – and since a peak in May 2018, they’re down 64%. The price has been edging up nervously in the past few months, but I still see a lot of uncertainty there.
Ironically, as fellow Fool writer Roland Head points out, there was a parliamentary inquiry into whether the shares were sold too cheaply at IPO back in 2013 at 330p – but today they’re 30% down on that price. National treasure? National liability more like.
Royal Mail’s problem is cultural, and it’s stuck in the old days of strong union power, strikes, and disruption. It’s arguable that the new delivery firms that have sprung up are more exploitative of workers and that Royal Mail employees are simply standing up for what’s right. But the unavoidable bottom line truth is that it’s all making RM uncompetitive and unattractive for business customers – and for investors.
Dividends
The firm has been paying big dividends while falling behind its rivals in capital expenditure and technology investment. Prioritizing handing cash to shareholders might do a firm some good in the short term, but when that’s cash that really should be put to better use, I think it’s a betrayal of long-term investors.
There’s a cut from 25p to 15p on the cards for the current year’s dividend, but it doesn’t look anywhere near enough – not with the big earnings falls being forecast.
Royal Mail might well pull it around, but until I see some joined-up management it remains a bargepole stock for me.