Morgan Stanley on NXT trading update



Edited highlights below - they are negative on the shares. All in all, market forecasts will go up c.1% for FY18 and FY19 - with questions over the allocation of surplus cash:

"… the more important newsflow today is not the group’s performance over Christmas, but its financial guidance for FY 2018/19. This is the first time that management has provided guidance for the new financial year, and at this early stage the range of outcomes is understandably wide… No profit guidance range has been given, but the company makes clear that at the mid point (ie sales growth of +1%) it would expect to deliver profits of around £705m. The current consensus average is £696m, so this is also consistent with a c1% upgrade to consensus…

We also think it worth noting that the company has indicated today that it intends to return c£300m to shareholders via share buybacks in FY 2018/19. Whilst Next has been returning excess capital to shareholders for many years, and the quantum indicated today is unlikely to surprise anyone much, we think the fact that the company is intending to use buybacks rather than special dividends (as it did last year) is noteworthy. The bulls will argue that this will enhance EPS by c4% and that it is a sign of management’s long-term confidence in the business. The bears will argue that, without special dividends (180p per share last year), the yield comes down to less than 4% and that buying back shares in a company where profits are declining (as management guidance implies) is, in the long term, likely to be value destructive."