Analysts at investment bank Jefferies responded to Next plc’s second profit upgrade in just two months with a 10% hike to its share price target.
Following a strong first half, Next increased its full-year profit-before-tax (PBT) target from £980 million to £995 million.
This was on the back of climbing online sales revenues, which sufficiently offset lower margins in the physical retail segment.
Next shares are currently trading at an all-time high of 10,470p, but this should not prove to be an impediment to further gains “as the group rediscovers its growth mojo”, surmised Jefferies analysts.
“All in all the update confirms a strong start to the year, with impressive international growth offsetting a weather-hit domestic delivery,” they added while giving the stock an 11,400p price target.
The road to one billion
The big question is- can Next top £1 billion in PBT for the first time ever next year?
Growth trends suggest this is a distinct possibility. But what is driving this consistently bullish performance?
It’s a combination of factors, reckons Richard Hunter, head of markets at interactive investor.
Alongside online business growth, “the overseas offering is one which holds up some interesting prospects”, said Hunter.
Next is seeking to establish third-party partnerships across the US and Asia, where delivery of products has historically been a roadblock to market penetration.
Hunter also highlighted that overseas marketing spend has ramped up significantly- from just £8 million across 19 countries in 2020 to £41 million across 43 countries per today’s latest figures.
Next has also shifted its focus stronger towards full-price sales over discounted items.
“The strategy has paid off with the company previously noting that there is an increasing proportion of customers who are buying fewer, but more expensive items, which potentially brings new opportunities for Next slightly higher up the price chain,” said Hunter.
Is it all priced in?
Currently trading at 16 times price to earnings, Peel Hunt analysts suggested that the stock is already bid at appropriate levels, which could stifle any near-term upward rerating of the stock.
Though, as evidenced by Jefferies’ bullish price target, opinion is clearly divided among City analysts.
“Next remains a key holding in the sector,’ Peel Hunt analysts agreed, but they see better value with the ‘more lowly rated Marks & Spencer Group plc, “given the more significant EPS upside over the short term from the M&S recovery”.