“It has been a long time since we started a year in a more positive frame of mind,” read the first line of Next plc’s annual report.
The sentiment was more than justified with today’s earnings beat and shareholder cash splash, with profit before tax for 2023 coming in at a record £918 million for the FTSE 100 clothing retailer.
Brokers duly reacted very positively to these results.
“Lord W. has a spring in his step, speaking for his business to be ‘entering a new era’,” said Shore Capital Markets, referring to chief executive Simon Wolfson.
“The firm is a high-class act with a deserved equity capital market following because there is a more than reasonable chance that it will beat its guidance,” analysts at the capital markets group added.
On the valuation front, Shore Cap acknowledged that, at a nine to ten times enterprise value to EBITDA (EV/EBITDA) ratio, the stock isn’t particularly cheap, but “it is an example of paying for what one gets, a very well ran business with considered growth prospects that add up when compounded, supported by good capital discipline and generally excellent capital allocation”.
Analysts added: “There is still a lot to like at Next, and we particularly underscore Lord W’s comments on his positive mood, which we believe has a sound read across for well ran UK discretionary consumer goods retailers.”
Stifel analysts called it “a very good year for Next”, though they also believe the group’s strengths are already priced in. They slapped a hold rating on the stock with an 8,600p price target.
UBS also recommends staying neutral on Next stock with a 7,250p price target. Though UBS analysts called it a “solid” set of results, they highlighted wage inflation “as the key driver of margin pressure” in both online and physical sales channels.
Next is also expected to marginally reduce selling prices to reflect lower factory gate pricing, although shipping delays and higher freight costs due to the Red Sea crisis could result in second-quarter margin pressure.
Not that the market is too worried- shares in the group ratcheted up 7% to an all-time high this Thursday. They were swapping for 9,100 at the time of writing.