High street heavyweight Next is in talks to acquire a 25% stake in struggling fashion and lifestyle chain Joules, according to a Sky News report.
If completed, the proposed acquisition of the 130-store London-listed chain would be the latest addition to Next's Total Platform e-commerce business.
Joule’s valuation tanked this year as inflationary pressures mounted, but Next is facing its own problem too, after the HMRC recently reclassified the chain from a low-risk taxpayer to a medium-risk taxpayer.
The move was due to widespread employee mispayments and inadvertently over-claiming money from the coronavirus job retention scheme without giving 4,000 staff members their furlough entitlements.
What brokers say
Equities analysts at Shore Cap aren’t overly bullish on the proposal, stating: “While the potential investment in Joules marks another client for the Total Platform, the HRMC investigation could indicate that the business has undertaken more than it can deal with.
“In particular, following the normalisation in the online channel growth, we note how several companies have miscalculated their investments and had to reconsider their growth plans.”
Shore Cap sees Next shares as “fairly valued” with a price-to-earnings multiple of 12x, thus has reiterated a “hold” rating
As for Joules, shares responded to the news with a 50% rally on Monday morning; small beer compared to the 76% year-to-date losses incurred by the retailer prior to the announcement.