I read recently that apparently 90% of people polled in one survey thought that the whole Brexit shenanigans are a national embarrassment. I think I am with the crowd on this one...which makes me happy to see a regulatory news statement from my old pals at Next (NXT), which wonderfully observes on the whole future EU relationship debacle: 'we can see no evidence that this uncertainty is affecting consumer behaviour in our sector'. Good news...but then Next, unlike so many of its other sector peers, is a quality operator as I have attested before – and can be seen in its latest numbers...
These are in line with the hopes guided to the market in January. Of course, that does not mean that everything is stellar with EPS growth of 4.5% and a dividend increase of an almost equivalent proportion - but they are moving forward. Cash generation remained strong and allowed a cool £541 million to be returned to shareholders via the aforementioned dividend and a continuing share buyback. That's equivalent to over 7% of the current market cap, which is a decent shareholder remuneration yield in anyone's book. Of course there are structural evolutions as best evidenced by the observation that '(F)ull price sales were up +3.1%. Online full price sales increased by +14.8% and Retail full price sales declined by -7.3%'.
Even Next in its physical shops cannot buck the strong prevailing online trend...but then it did effectively call the switch a generation ago via initially its massively successful mail order Directory. Or as the company put it itself 'the business has moved from stores to internet, from UK only to international, from mono-brand to multi-brand aggregator'. What you need to know as an investor is that online profits are already bigger than those at the stores and the gap is only going to get bigger. As for the next twelve months, akin to the thoughts noted at the link above, growth is not going to be epic but it should be positive. Full price sales are expected to rise 1.7% year-on-year, taking group profit before tax to £715 million. This actually will lead to a 1.1% fall in this metric but - aided by the ongoing share buyback - earnings per share growth is estimated to be 3.6%. In short (and reiterated by the dividend hike), Next overall remains a lower (but positive) growth annuity style business with the cash generation/dividend being the major attraction.
One of the more interesting statistics in the full year numbers is the observation that 'Last year we negotiated a rent reduction of -29% on the leases that we renewed'. That hardly screams well for the property names, does it? I also liked the geek style nature of the fifteen year corporate stress test the company discussed in its results, trying to anticipate what a progressively bigger shift to online would look like. Feel free to delve into the statement for the full details but suffice to say there is a profitable/cash generative Next business that still emerges. Clearly reality over the next ten or fifteen years is likely to be different from any model derived today but the conclusion I think is broadly valid. In short, if you want an annuity large cap core non-food retailer...you do not need to say 'next', just invest in Next. As I am not buying annuities yet, my more trading view would be akin to last time 'deserves to be back at 50 quid plus. Don't hesitate in the lower 40s'. With the share trading just over the 50 quid level as I write, I remain on the sidelines but watching closely for an opportunity...whilst wearing my newish Next jumper. Yes, even I can find something to wear there.
Filed under: Next, Bearcast, Neil Woodford, Maistro, ITV, Malcolm Stacey, Smiths Group, Amigo
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