Should You Buy Marks & Spencer Today?

LONDON -- Shares in beleaguered British retailer Marks & Spencer Group have shot higher in recent days, fueled by speculation that the Qatari Investment Authority is concocting an 8 billion pound takeover bid for the shopping chain.

The company has become an enduring casualty of the troubled domestic retail environment, but I am backing the iconic shopping brand's drive into emerging markets to reinvigorate its fortunes and offset enduring weakness in the U.K. and Western Europe.

International expansion to fuel future growth
The retailer's January interims revealed that group sales trudged just 0.6% higher in the three months to the end of December, with U.K. revenue edging 0.3% higher during the period. British like-for-like sales dropped 1.8%, meanwhile, and the firm warned of further toughness in the retail environment at home.

To address this ongoing weakness, Marks & Spencer is aiming to boost its operations in countries with strong structural drivers across Asia, the Middle East, and Eastern Europe. For example, it is planning to hike the number of stores in India from 30 to 80 within the next three years, while in China it aims to boost the number of its stores in Hong Kong and Shanghai in the near term.

And the company plans to use a multichannel approach to geographical expansion, including the establishment of franchise stores with strong partners, which will harness both local knowledge and infrastructure to spark growth. Marks & Spencer is also looking to aggressively tap into online trade in these regions, and it launched its local website in China at the start of the year.

Looking good for earnings turnaround
According to broker forecasts, earnings per share are expected to dip 7% to 32 pence in the year ending March 2013 before reverting 7% higher during the following year to 35 pence. And an 8% rise to 37 pence is penciled in for 2015.

Despite the recent share-price ascent, the retailer still trades at a significant discount to the broader retailers sector's forward earnings multiple of 18.7. Shares in Marks & Spencer currently change hands on a P/E of 12.1 for 2013, and this is anticipated to fall to 11.3 and 10.5, respectively, in 2014 and 2015.

Get used to great dividends
Marks & Spencer's investment appeal is bolstered by a sound dividend policy. City analysts expect a shareholder payout of 17 pence per share for March 2013 -- which would match the dividends of 2011 and 2012 -- to rise to 17.8 pence in 2014 and 19 pence in 2015. These payments come with respective yields of 4.8% and 5.1%, besting the mean reading of 3.5% for the U.K.'s 100 largest companies. Further, investors can take comfort in dividend coverage close to the safety threshold of two times: 2014 and 2015 dividends are both covered about 1.9 times.

The canny guide for clever investors
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