Next boosted by Investec upgrade to 'buy'
Next got a boost on Wednesday as Investec upped its stance on the retailer to 'buy' from 'hold' and lifted the price target to 4,750p from 3,900p.
FTSE 100
7,895.85
16:59 19/04/24
FTSE 350
4,341.08
17:09 19/04/24
FTSE All-Share
4,296.41
17:08 19/04/24
General Retailers
3,864.64
17:09 19/04/24
Next
8,774.00p
16:40 19/04/24
It said that unlike peers, Next has been actively managing its portfolio over the last 10 years, something that is being overlooked by investors preoccupied by short-term trading.
"Next's estate is well-invested, and in our view margins appear sustainable, even if retail like-for-like sales continue to fall. Post FY18, profits should stabilise even if consumer demand remains weak, with some self-help. In our view, valuation doesn’t reflect Next's qualities as a well-invested business with strong and sustainable cash flows."
The brokerage highlighted the fact that Next's store portfolio has undergone more than just a refit. 53% of Retail's square footage didn't exist 10 years ago, even though store numbers have risen by just 12% since the start of full-year 2008.
In addition, Investec said new space is highly profitable and reflect an active property strategy, with new stores contributing around 40% more than company average. "Profitable new space continues to generate a profit buffer each year versus negative LFLs," it said.
Investec also said cash generation remains robust, with surplus returns looking secure.
"Next remains a well-invested highly cash generative business, with £500m+ per annum of free cash flow and over £255m of surplus cash (free cash flow less ordinary dividends). Even if FY18e profit before tax falls another 3% to the bottom of guidance, Next still expects to generate £255m of surplus cash. This highlights the security of the capital return."
At 1018 BST, the shares were up 2.2% to 4,422p.