A ray of light at M&S, but let's not get too excited

M&S hope; Railway vacuum; Airline aid
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The Independent Online

Well, well, this really is a pleasant surprise: a trading statement from Marks & Spencer that is actually better than expectations. No wonder the City was galvanised into action, pushing the shares up to their highest level since January 2000.

Well, well, this really is a pleasant surprise: a trading statement from Marks & Spencer that is actually better than expectations. No wonder the City was galvanised into action, pushing the shares up to their highest level since January 2000.

Credit where it is due. The figures were decent and there appears to be a discernable trend with the decline in like-for-like clothing sales improving from minus 9 per cent in the first quarter to minus 2 per cent in the second. There is even a suggestion that the numbers turned positive in September, which should mean fewer markdowns, better margins and more profit upgrades.

But before anyone gets their M&S knickers in a twist, it is worth injecting a note of realism. First of all, these figures were achieved against fantastically weak comparisons last year when M&S sales were falling though the floor. Second, they come against the backdrop of a still booming retail environment, with the British Retail Consortium survey showing a near 6 per cent growth in consumer demand for September, despite the terrorist atrocities in the US. Whether that demand continues into the key Christmas trading period is anyone's guess.

Thirdly, M&S is still underperforming its main rivals in both clothing and food. It shows how low expectations were when a decline of 2 per cent in clothing sales is seen as evidence of the green shoots of recovery. Anyone looking at the share price graph would have thought the recovery started a year ago. M&S is already the best performing share in the FTSE 100 this year with a rise of 60 per cent and it could be that the price is running a little ahead of itself.

London institutions have recently joining US value investors in buying the stock for its defensive qualities – the food retailing interests, strong balance sheet and property portfolio. The company has also been buying its own shares heavily. The upshot is that, as things stand, the shares are starting to look expensive again. Certainly they are now high enough to deter all but the most determined of bidders. Even on upgraded profit forecasts of £580m, they trade on a forward multiple of 22.

Going higher depends on a sustained increase in trading, which is where it gets tricky. The recent launch of the Per Una range from George Davies may provide added impetus. But it is only in a small number of stores and the real key is M&S's own "classically stylish" ranges aimed at the over 35s. Luc Vandevelde, chairman, may have succeeded in stabilising the situation, in halting the decline, but can he return the company to growth? The jury is still out, and the shares look highly vulnerable to any setback in the high hopes invested in them.

We have seen countless false dawns from this company since the rot set in, three or four years back. Vandevelde's pledge to achieve an M&S turnaround within two years still looks a tall order with just five months to go. But at least he is now seems to be in with a chance. The same could not have been said earlier this year.

Railway vacuum

Stephen Byers was a pretty poor Secretary of State for Trade and Industry, but he's proving even worse as Transport Secretary. Yesterday, this column explained why Mr Byers' decision to put Railtrack in "Railway Administration" was a betrayal of the contract government had made with Railtrack shareholders when the company was privatised in the mid 1990s.

This might have been forgivable had My Byers been able to articulate any kind of long-term vision to back the claim that administration "offers the best way forward for the railways". He has not. Rather the reverse, in fact. No one, least of all Mr Byers, seems to knows what the "not for profit trust" that will replace Railtrack is meant to be, what assets will be transferred to it, how it will be funded, or even who will run it.

No extra money has been promised to the railway over and above that previously announced, no successor to Sir Alastair Morton as chairman of the Strategic Rail Authority has been put in place, or decision taken on how he will interact with the army of other rail regulators, no plan has been announced over what to do about the ballooning cost of the West Coast Main Line, and no explanation has been given of how the private sector might be persuaded, given what's just happened, to stump up the extra £23bn the railway needs. There's no charitable way of putting it. From the outside, the policy looks like an ill thought out shambles.

Few would argue that Railtrack is a company that deserved to survive, but there's very little point in chucking the pilot overboard unless you've got a clear alternative strategy for steering the ship to harbour. Mr Byers seems to have none. Indeed the immediate effect of his decision will be a further loss of confidence in railway investment, a further six months (or more) hiatus in development, and months, possibly years, of debilitating litigation.

It is as pointless to call for Mr Byers' resignation as it is for the sacking of his idiotic special adviser, Jo Moore, who memoed the transport press office inviting it to use the terrorist atrocities in the US as a cloak for announcing bad news. Most people think Mr Byers has done the right thing in winding up a much hated company, if not in refusing to sack Ms Moore, but that's only because they don't fully understand the vacuum in policy he's plunging the railway into. Still, for every cloud.... It will be Mr Byers who gets the public blame come the next Hatfield, but then he probably hasn't thought about that one either.

Airline aid

The European Commission has traditionally been a soft touch for state aid to the airline industry, but under Mario Monti, the quietly spoken Italian economist who looks after the Commission's competition directorate, things seemed to be changing for the better. Until now, that is. The events of 11 September have provided a fresh excuse for government bailout, made stronger still by the $15bn of aid the US government has promised to make available to American airlines. Mr Monti has been finding it hard to hold the line.

Well, today we'll know whether he's succeeded, with Brussels expected to pronounce on quite how much aid it is prepared to allow. The general assumption is that aid will be limited to the direct losses stemming from the terrorist atrocities, interim insurance cover and the increased costs of security which, when spread across the legion of different airlines that exist in Europe, would certainly add up to a large number, but nothing like the $15bn promised in America.

The big question is how much scope might be left for extra aid on top to stop airlines from going bust, of the type which the Belgium government has already put in place for Sabena. Old habits die hard and whatever the Commission says, real politik will require a statement ambiguous enough for a continuation of state rescues. Not until the European Union dismantles the bilateral agreements that exist between nations over landing rights can there be any real progress in introducing proper competition into the airline industry. The hope must be that 11 September will accelerate developments, but don't hold your breath.

j.warner@independent.co.uk

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