Hopes of rising clothing sales and the impact of a rallying pound put Next in fashion on the London market today.
RBC Capital Markets upgraded the high street stalwart to “outperform”, citing its improved sales outlook and lifting its target price from £48 to £55. By late afternoon in London shares in Next were 2.9 per cent, or 142p, higher at £50.54. “Our proprietary entry price point pricing survey suggests that Next has become more price competitive, in particular, versus its key competitors M&S and Debenhams,” RBC said. “Next now ranks slightly below sector average in its entry-level apparel pricing.”
The broker added that the recent rally of sterling, which took it above $1.43 for the first time since June 2016 in the early hours of this morning, “could boost Next’s gross margin earlier than peers”. It concluded: “We believe some of this margin gain will be offset by higher cotton costs, mix dilution, as well as the need to invest in its product and online propositions, but we now believe Next can sustain its margins rather than seeing a decline.”
Next’s directory service now generates 40 per cent of the retailer’s sales and about 55 per cent of its earnings. “Directory is well placed to benefit from continued migration to online,” RBC said, forecasting 3 per cent swing towards directory in sales over the next three years, and a 7 per cent shift in earnings.
The strengthening pound, which continued to trade at its highest levels since Britain voted to leave the European Union, up 0.2 per cent at $1.427, continued to depress the FTSE 100 where the majority of companies make their money in dollars. At the close in London the index was 26.92 points, or 0.4 per cent, lower at 7,616.83.
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The artificial hip and knee maker Smith & Nephew topped the index, advancing 49½ p to £12.91½ , after JP Morgan Cazenove upgraded it from “neutral” to “overweight”. Analysts at the US investment bank had expected the company to benefit from the recent American tax overhaul, but they said that its forecast tax rate of between 20 and 21 per cent, down from 25 per cent, was “better than we had expected”.
The FTSE 250, which is more domestically focussed, slipped 40.83 points, or 0.2 per cent lower, to 20,497.63. Renishaw, whose micro instruments are used in facial reconstruction and neurosurgery, slid 14.5 per cent to £48.22 after disappointing the market with a half-year update.
Still, Wall Street provided a more positive start to the day. By mid-morning in New York US markets were trading at new recorrds with the Dow Jones industrial average up 156 points at 26,407.48 and the S&P 500 up 3.35 points at 2,840.89.