UBS has reiterated its buy rating on Marks & Spencer and lifted its price target to 465p from 425p, arguing that a detailed analysis of the retailer's online fulfilment network points to significant margin improvement over the medium term.
The bank now expects online margins in M&S's fashion, home and beauty division to reach 10.7% by its 2029 financial year, up from 7.5% in 2025, driving overall division margins to 12.5% against a consensus estimate of 11.4%.
UBS identifies five controllable levers: reducing the proportion of split orders, increasing throughput at the Castle Donington warehouse, integrating the newly acquired Lichfield distribution centre, cutting legacy digital and technology running costs, and improving store handling productivity for click-and-collect and returns.
The bank estimates the current cost to serve on a £40 net order is around £19, or 48% of sales, leaving material scope for savings as the fragmented fulfilment network is simplified.
Near term, UBS expects first-half profit before tax of £388 million when results are published on 4 November, broadly in line with the buy-side bar of £380 million to £390 million.
The fashion division's weakness in the first half, which followed the disruption to manual ordering after the cyber attack, is viewed as largely factored into the share price.
UBS notes that autumn/winter inventory was ordered through normal systems and third-party market data from Kantar and Nielsen points to stronger food sales than consensus currently assumes.
The bank cuts its 2027 earnings per share forecast by 1% to 32.58p, but lifts 2028 and 2029 estimates by 2% and 7% respectively to reflect the improved online margin outlook.
At 11.5 times forward earnings, UBS sees the stock as attractively valued, with meaningful upside if M&S can demonstrate consistency in its fashion performance.
