RBC has reiterated its 'outperform' rating on Next PLC (LSE:NXT), raising its price target to £132 after hosting an investor meeting that reinforced confidence in the retailer’s prospects.
Next’s shares are already trading at the higher end of their historical valuation range, but the Canadian bank argues that this reflects the significant improvements in its growth potential, particularly internationally.
The retailer has long been strong in children’s clothing, but its online sales are now gaining traction in women's and menswear abroad.
RBC expects Next's international sales to grow rapidly, supported by partnerships such as the one recently expanded with Zalando, which allows Next to improve customer service and availability in European markets.
There is also optimism around its margins, helped by a weaker US dollar and favourable buying conditions in Asia, where much of its product is sourced.
These cost savings could either boost profitability or allow Next to offer more competitive pricing.
Additionally, RBC highlighted Next’s logistical improvements, notably the expansion of automated picking and packing operations at its Elmsall warehouse.
This automation is cutting costs and boosting efficiency significantly, providing a further tailwind for profitability.
Although Next remains cautious about consumer spending and inflationary pressures in the UK, RBC sees potential upside to profit forecasts due to stronger-than-expected online international sales growth and ongoing logistical improvements.
The shares were up with the wider market, advancing 1% to 12,310p.