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As shoppers prepare for a black Friday spree, the bargain hunt for good value UK companies continues for private equity firms. The UK high street is looking cheap right now which is the ideal time to go shopping if you are a big PE firm with plenty of dry powder.

The rumour mills are now grinding around a possible bid by Apollo Global Management for Marks and Spencer (LSE:MKS), sending shares 3% higher in early trade. It’s unlikely to be lingerie sales which have made M&S an attractive prospect, instead its food aisles and in particular the tie-up with Ocado which will be the allure.

Apollo is no stranger to UK grocery sector

Apollo has flirted with other acquisitions in the UK grocery sector, losing out in its quest for Asda, and then pulling out after making advances for Morrisons. Given its thwarted attempts so far, there is growing expectation that the group may make an offer for the company, particularly given that food was such a star performer in the last set of results.

“Apollo will be weighing up the future value of Marks and Spencer’s e-commerce tie-up with Ocado, and speculation that its success so far may lead the retailer to buy out Ocado’s 50% share indicates the weight of expectation about its growth prospects,” said Susannah Streeter, a senior investment and market analyst with Hargreaves Lansdown, “However, shares have surged more than 27% since those impressive results and if the price continues to climb, there is a chance Apollo may turn into more of a reluctant suitor.”

But the rumours have been sufficient to push up the shares in M&S considerably. The stock was trading at 248p at time of writing. It has already seen a big push upwards from around the 195p level earlier this month. Investors who were in M&S at the start of the month will have seen some considerable gains already. Shares were trading at just over 180p at the beginning of the month.

The results from the high street retailer were enough to give it a leg up and it is already starting to look more expensive for Apollo if it intends to move on this one. The company is already trading at a PE ratio of 190.21.

Are Marks and Spencer shares really worth the fuss?

M&S shares are now picking up some excellent relative strength from a technical point of view. This is looking good even on a 12 month time frame.

Off 22 brokers covering the stock, four rate it a strong buy, another seven have M&S listed as a buy, while nine have it on hold, according to data from Stockopedia.

Stockopedia rates M&S as a Super Stock, namely one with very high exposure to quality, value and momentum characteristics. M&S rates well on all three at the moment.

The rumour does demonstrate how the UK is still near the top of private equity shopping lists, with valuations of UK listed companies dragged down while the economy continues to reverberate with problems caused by the pandemic and Brexit after-effects.’ Investors can expect to see more PE firms sniffing around some very big fish in the UK market before further economic recovery makes them less attractive. With Central Europe struggling with the pandemic again, UK companies are likely to become yet more attractive.

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Please note this article does not constitute investment advice. Investors are encouraged to do their own research beforehand or consult a professional advisor.

Stuart Fieldhouse

Stuart Fieldhouse

Stuart Fieldhouse has spent 25 years in journalism and marketing, including as a wealth management editor for the Financial Times group, covering capital markets and international private banking, and as an investment banking correspondent for Euromoney in Hong Kong. He was the founder editor of The Hedge Fund Journal.

Stuart has worked at CMC Markets, supporting the re-launch of its global financial spread betting and CFD trading platforms. He is also the author of two books on trading, published by Financial Times Pearson. Based in The Armchair Trader’s London office, Stuart continues to advise fund managers, private banks, family offices and other financial institutions.

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