Next Shares Fall After Results

Shares drop after strong performance this year, but profits and dividend are up after rise in sales from online division 

James Gard 19 September, 2019 | 11:30AM

Next

Shares in Next (NXT) fell after the FTSE 100 retailer revealed its latest sales figures for the large six months.

While online sales were up 12.6% in the period, compared with the half year ending July 2018, retail sales were down 5.5%, highlighting the struggles of the high street.

Still, group sales were nearly 4% higher year on year to just above £2 billion. After tax profit was up by a similar amount to £266 million. There was good news for income investors too with a 4.5% increase in the ordinary dividend to 57.5p. Ian Forrest, Investment Research Analyst at The Share Centre, said the share price reaction was largely down to a strong run-up in the shares ahead of the results, especially after the upbeat July update.

He said the wider consumer picture remained a risk for the all companies in the sector.

“Given the considerable macro-economic and political uncertainty at present Next’s solid performance is positive for investors. While the company continues to see good growth in its online business and generates a good level of cash, the potential impact of the imminent Brexit creates a lot of short-term uncertainty for retailers,” he says, maintaining a “Hold” recommendation for the shares.

Next maintained its full-year profit forecasts made during the July trading update.

Arlene Ewing, investment manager at Brewin Dolphin, remains upbeat about Next: “Next’s advantage over many of its peers lies in its excellent customer service, well-run logistics business, and an ability to combine its physical stores with a good online offering. Its strategy bodes well for the company’s future.”

Next’s share price has risen far in excess of the FTSE 100 so far this year, rising from £41.77 to £59.56, a gain of 42%. The company’s share price struggled in the wake of the 2016 Brexit vote, but have built some momentum this year amid expectations that it will be one of the survivors of the consumer slowdown.

Next makes up nearly 4% of the portfolio of the Edinburgh Investment Trust (EDIN), which has a Silver rating from Morningstar and is managed by Neil Woodford’s former colleague at Invesco, Mark Barnett.

Morningstar analyst Peter Brunt notes that the trust has increased its dividend every year since 1973 (barring a couple of years) and Next is considered a solid dividend payer. While not in the league of the FTSE 100 pharma companies or utilities, Next’s near 3% yield is backed by a dividend cover of more than 2.5, which means that it could pay dividends more than twice over by using this year’s earnings.

 

 

 

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Securities Mentioned in Article

Security NamePriceChange (%)Morningstar
Rating
Next PLC7,190.00 GBX5.18

About Author

James Gard  is content editor for Morningstar.co.uk

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