M&S is the 'next Next', claims UBS

Analysts at the Swiss bank UBS told investors to buy M&S shares following encouraging half-year results

M&S clothes, Next shirt
Next has overtaken M&S in recent years in terms of both earnings and market value Credit: Photo: Bloomberg News / Alamy

Signs of a turnaround at Marks & Spencer have led UBS to dub the retailer the "next Next".

M&S surprised investors on Wednesday after posting better-than-expected first-half results that showed M&S was increasing gross margins at its beleaguered clothing division faster than had been forecast.

Analysts at UBS were so impressed by the results - in particular the improvement in margin at M&S's general merchanise division - that on Thursday they drew the comparison with Next.

While Next sounded a profit warning last week, the alert was out of character for a retailer that has thrived in recent years and overtaken M&S in terms of both earnings and market value.

Next shares have surged more than 230pc over the past five years, far outstripping the 28pc gain in M&S shares. The market cap of Next has grown to almost £10bn, surpassing M&S at £7.6bn.

However, the UBS analysts now expect an M&S recovery.

"Having seen a number of general merchandise gross margin disappointments over the last few years, there are now signs that M&S is making headway in an area which provides significant opportunities over the next several years," Andrew Hughes and Adam Cochrane said in a note to clients.

"M&S [has shown] a mid single digit improvement in full price womenswear sales in the first half.

"While we do not know the absolute level, our best guess is that it is around 70pc, compared with circa 92pc at Next. This suggests a multi-year potential benefit."

The recommended buying M&S shares, helping to send them up 5.2pc to 467p.