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Broker verdict: Next

Cherry Reynard
Written By:
Cherry Reynard
Posted:
Updated:
10/12/2014

Brokers give their verdict on Next’s disappointing results.

Richard Hunter, Head of Equities at Hargreaves Lansdown Stockbrokers

“Having taken the sting out of the cautionary tone in its late September trading update, this announcement from Next throws out few surprises. The unseasonably warm weather has indeed led to a slowdown in sales growth, with profit guidance being shaved as a consequence. In addition, the accompanying outlook comments for the remainder of the year are, as ever, conservative, with Next highlighting some strong comparatives to come. Nonetheless, growth at the Directory business is still nudging double digits for the quarter – though this is at the lower end of expectations – and its earnings per share growth is at 10% for the full year.

The transparency of Next’s announcements has tended to assuage investors, though today’s confirmation may have prompted some profit taking on the basis that the shares have risen 23 per cent over the last year, as compared to a 5 per cent fall in the wider FTSE100. Bearing this movement in mind, along with the cautious outlook, the market consensus of the shares as a strong hold is most likely to remain intact.”

Ian Forrest, investment research analyst at The Share Centre

“Next reported a 5.4 per cent rise in third quarter sales this morning, which was well below the 10 per cent it was expecting. The clothing retailer blamed unseasonably warm weather in September and October and has now lowered its expectations for fourth quarter sales. Full year profit guidance has also been reduced from £775m-£815m to £750m-£790m.

“Investors in Next have done very well this year thanks to special dividends and the shares comfortably outperforming the market. The Next Directory business is still performing well and even the lowered profit guidance represents an 8-14 per cent increase over last year.

“We continue to recommend Next as a strong ‘hold’ due to the company’s excellent track record, good management, healthy dividend and the scope for further share buybacks. However, we would prefer to see stronger growth in the pipeline before investors get on board at this price.”