1st Feb 2024 18:24
(Alliance News) - Shares in Next PLC fell on Thursday after Barclays downgraded the Leicester-based retailer, although it remains a fan.
The broker explained the move to 'equal weight' from 'overweight' was driven overwhelmingly by valuation.
It pointed out the share price has moved beyond its previous price target of 8,250 pence and now sits close to its new price target of 8,500p, which was increased for the positive Christmas trading statement and encouraging 2024/25 outlook.
In January, Next lifted annual guidance once again, after sales around the key festive period were better than what the retailer had anticipated.
In the nine weeks to December 30, the clothing and homewares seller's full price sales were 5.7% higher year-on-year, some GBP38 million better than its previous guidance. It had expected growth of 2.0% year-on-year. The period forms part of its fourth quarter, which concludes on January 27.
Sales growth accelerated as Christmas got closer. Full price sales rose 10% in each of the weeks beginning December 17 and December 24.
In the last 12 months, shares in Next have risen 20%, and on Thursday were trading at 8,302p, down 2.0%, below a high reached in January of 8,360p.
Barclays continues to think Next is an exceptionally well managed company with interesting long-term growth prospects, strong cash flow generation and consistent cash returns.
However, it is now trading close to its five-year average price to earnings ratio.
"We do not see obvious catalysts in the near term now that the company has set out its initial profit guidance for FY24/25," it added.
Barclays also had questions over the recent acquisitions of stakes in JoJo Maman Bebe, Joules and FatFace.
"It remains to be seen whether the speed and extent of the value creation will be as dramatic as was the case for Reiss," the broker said, noting another recent addition to the Next stable.
"While we applaud the company's best efforts to thoughtfully report the economic reality of its equity investments, this has inevitably led to an unhelpful degree of change and complexity in how performance is reported."
"In order for Next's earnings multiple to reflect the full potential of its equity stakes, we think it may have to continue to work out how best to report and explain the performance of these businesses," Barclays believes.
By Jeremy Cutler, Alliance News reporter
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