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About the company
Next plc is a British multinational clothing, footwear and home products retailer headquartered in Enderby, Leicestershire. It has around 700 stores, of which 502 are in the United Kingdom and Ireland, and around 200 are in continental Europe, Asia and the Middle East. Next is the largest clothing retailer by sales in the United Kingdom.
Our stance on Next
We continue to maintain our overweight recommendation on the shares as we remain comfortable with managements’ growth objectives and the industry it is in. Full year results will be announced on 24th March 2016 and we recommend holding on to the shares before the results.
We reduced our price target slightly from 7100p to 6960p by lowering the PE multiplier in our model from 18x to 16x, moving it closer to its long term average. Although we would we still feel comfortable with a higher multiple, we took a prudent stance due to the current global economic slowdown.
Our major concern at this point is Brexit. The exit from the Union will have negative repercussions on UK businesses.
We like Next as a company because throughout the years management has continually come up with new ways of how to increase revenue for the Group and we expect this to continue in the years ahead. We expect that the increase in online sales will increase economies of scale and reduce the operating expense margin of the Group.
Despite managements’ efforts to improve the performance of Next, the shares have underperformed the FTSE 100 this year mainly due to a slowdown in the retail sales in the last few months of 2015 mainly due to warmer weather. We expect the loss of sales at the end of 2015 to be recouped in 2016. In fact, recent data on ‘UK retail sales – textile clothing and footwear store sales per week volume year-on-year’ has shown a strong improvement in the industry in January. We expect this to continue in 2016 and beyond.
Other reasons why we are confident in the performance of Next shares during the year are as follows:
Concerns
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