7 Top-Rated Funds Hit By Next Shares Slump

High-street stalwart Next failed to live up to its stellar first quarter, as shares slipped 7.5% after its second half numbers

David Brenchley 1 August, 2018 | 1:18PM
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Next shopping bag, Next share price, stocks, retailers, FTSE 100

Next (NXT) continued its quarter-on-quarter theme of one step forwards, two steps back on Wednesday after first-half sales disappointed relative to broker forecasts.

The high-street stalwart impressed in the first quarter, raising its full-year profit guidance having been boosted by the warm start to the year. Shares jumped 6% back in May.

Wednesday’s announcement saw more improvement in sales, with second-quarter revenue up 2.8% on Q2 2017 and full-price sales in the first half up 4.5% on last year. Meanwhile, online sales continue to flourish, up 15.5% year-on-year.

Again, that was driven by “the prolonged period of exceptionally warm weather” in the UK and the company admitted “it is almost certain that some of these sales have been pulled forward from August”.

As a result, it kept its full-year profit forecast at £717 million, meaning shares fell 7.5% in morning trading to a three-month low of £54.92.

Broker UBS still thinks Next has a favourable medium-term outlook, backing the stock to hit £66.60 in the next 12 months – which would be a near-two-and-a-half-year high.

Which Top-Rated Funds Were Hit?

We recently outlined a few bull cases on the retailer, which is expected to beat gloom stories from the high street, where the likes of Toys R Us and House of Fraser have floundered.

But that came with the caveat that Next is a “perennial source of frustration” for many investors, with results fluctuating quarter-to-quarter.

And the likes of Fidelity, BlackRock and Invesco – which own a combined 33% of the company – will be counting their losses once again.

Mark Barnett was one of the fund managers worse hit by the share price decline. Barnett owns Next in a number of mandates, including the Morningstar Silver Rated Edinburgh Investment Trust (EDIN) and Bronze Rated offerings Perpetual Income & Growth (PLI) and IP High Income.

Elsewhere, the Bronze Rated Fidelity Moneybuilder Dividend has 2.78% of its portfolio in the stock, with Silver Rated Old Mutual UK Alpha run by Richard Buxton, who is also a Next bull.

Two mandates run by Troy Asset Management – Silver Rated Troy Trojan Income and Troy Income & Growth (TIGT) – also have positions of more than 2.5%.

TIGT manager Hugo Ure recently told Morningstar.co.uk that, despite seeing the UK high street as "challenged", he's backing two names: WH Smith and Next. "Their management teams are able and have the flexibility to combat that difficult environment," he explains.

"Both have very strong capital allocation and recognise that just pushing harder on the revenue line against a headwind is not a constructive use of capital."

The information contained within is for educational and informational purposes ONLY. It is not intended nor should it be considered an invitation or inducement to buy or sell a security or securities noted within nor should it be viewed as a communication intended to persuade or incite you to buy or sell security or securities noted within. Any commentary provided is the opinion of the author and should not be considered a personalised recommendation. The information contained within should not be a person's sole basis for making an investment decision. Please contact your financial professional before making an investment decision.

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Securities Mentioned in Article

Security NamePriceChange (%)Morningstar
Rating
Edinburgh Investment Ord734.22 GBX0.30Rating
Fidelity MoneyBuilder Dividend W INC136.50 GBP-0.07Rating
Invesco UK Eq High Inc UK Z Acc336.19 GBP-0.45Rating
Jupiter UK Alpha Fund (IRL) I GBP Acc17.00 GBP-0.11Rating
Next PLC9,460.00 GBX0.36
Trojan Income O Acc367.25 GBP0.07Rating
Troy Income & Growth Ord66.80 GBP0.61Rating

About Author

David Brenchley

David Brenchley  is a Reporter for Morningstar.co.uk

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