Next PLC (LSE:NXT) is more exposed to the lagged impact of interest rate rises in the UK, according to RBC Capital Markets.
The broker has downgraded the Leicester-based retailer to sector 'perform' from 'outperform' and marked its price target down to 7,700p from 8,000p.
“We continue to view Next as a blue-chip UK consumer proxy offering longer-term growth potential from its Total Platform.”
“However, we see more valuation upside for some other retailers, hence we have downgraded our rating to sector perform, the broker said.
RBC sees the FTSE 100-listed retailer as being relatively exposed to higher interest rates and softer employment trends in the UK, given it generates over 85% of its sales here.
“We do see Next as more exposed to the lagged impact of higher interest rates, given its relatively high exposure to the 30-50 age group, where average spend on mortgages is highest,” it said.
It sees more valuation upside for some other stocks such as AB Foods, Boss and B&M European Value Retail.
Elsewhere in the retail space, RBC has upgraded Dunelm to 'sector perform' from 'underperform', pointing out it is trading towards the lower end of its historical valuation range.
“We view this as fair given Dunelm's well-managed, cash generative model, albeit a relatively challenging outlook for home related sales,” it said.
It raised its price target to 1,100p from 1,000p.
Shares in Next are down 1.1% while Dunelm is also lower, down 0.2%.