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Upgrades Profit Forecast

lse:nxt

#1

https://uk.finance.yahoo.com/news/uks-next-upgrades-profit-forecast-073341984.html

British clothing retailer Next upgraded its full-year profit forecast after it beat guidance for sales in the run-up to Christmas, as colder weather helped sales of winter clothes.

Next said total full price sales rose 1.5 percent in the period from Nov. 1 to Dec. That was ahead of company guidance for a fall of 0.3 percent and follows third quarter growth of 1.3 percent.

The retailer upgraded its central pretax profit guidance for the full 2017-18 year, forecasting 725 million pounds, up from previous guidance of 717 million pounds but below the 790.2 million pounds made in 2016-17.

Next forecast full price sales growth of about 1 percent in the 2018-19 year and another fall in profit to 705 million pounds, with costs growing faster than sales.

Games - how will the market react?


#2

“Games - how will the market react” SP +9% so I would say exuberantly!
Glad I bought more a year ago after profit warning but sorry I took profits on that purchase by selling 25% of my NXT shares in May. I have always had confidence in NXT management and believed that SP would tend to revert to mean trend. To get back to 10 year trend line SP would have to rise to £83. That looks unlikely but £70 within a couple of years may happen.
NXT is 2.9% of my share portfolio of 45 shares.


#3

certainly seems to have stabilised the ship a tad.
Profits still expected to fall, but it looks like they are growing the online stuff pretty well.
Will they cull more of the footfall space I wonder?

All those special divs in the meantime are a nice bonus!

Games


#4

“… always had confidence in NXT management and believed that SP would tend to revert to mean trend. To get back to 10 year trend line SP would have to rise to £83. That looks unlikely but £70 within a couple of years may happen…”

I think the market likewise retains its confidence (rightly or wrongly?) in management - hence once again the “exuberant” +8% reaction to a c.1% increase in profit forecast. The long term track record demands respect, of course - but offers no guarantees going forward. And they are still looking at another down year for profits in FY19, on Wolfson’s current central case.

Interesting comment on headwinds easing into the new year, with specific detail on cost price inflation levelling off - we knew this already of course, as widely discussed on other retail stock boards, but now Wolfson has said it, it becomes a real “thing”.

“All those special divs in the meantime are a nice bonus!”

Interesting that they are committing to buy-backs rather than further specials for the surplus cash (forecast £300m) in the year ahead - this won’t go down well with everyone, though again could be construed as reflective of Wolfson’s confidence.

£50 doesn’t look too demanding at all here, but beyond that? Harder to know… lest we forget, NXT has spent most of the last 30 years down below £20, and the period (£60-£80) between early 2014 and early 2016 (a blink of an eye, really) could eventually prove the anomalous exception rather than a reasonable rule…


#5

Bill1703, " lest we forget, NXT has spent most of the last 30 years down below £20, and the period (£60-£80) between early 2014 and early 2016 (a blink of an eye, really) could eventually prove the anomalous exception rather than a reasonable rule… "

I suspect that the above opinion was gained from looking at linear share price charts. These tend to make it look as if all the big movement in SP occurred over a short period of time, which in absolute price terms they would have but as an investor the important thing is percentage change over a period (perhaps months or years).

The 10 year trend for NXT is 25.0% pa. Going further back, charting SP with a log price scale back to Jan 1996 gives a trend line of 12.8% pa. Up to May 2007 SP did not fluctuate that much from 12.8% trend line line then fell sharply during recession. From Oct 2008 SP rose a lot faster than 12.8% pa. From Nov 2015 high of £80.15 following profit warnings it fell to a Jul 2017 low of £37.66.

I am not generally a fan of share buy-backs but NXT management do it well and I like the capital gain it brings better than special dividends. They do not buy-back if they consider SP above fair value for company.


#6

“I suspect that the above opinion was gained from looking at linear share price charts… as an investor the important thing is percentage change over a period… The 10 year trend for NXT is 25.0% pa. Going further back, charting SP with a log price scale back to Jan 1996 gives a trend line of 12.8% pa…”

Yes, Rhigos, a fair challenge - I was really just musing aloud. But the thing is, all of that is backward-looking - the world is changing rapidly for NXT, and they no longer enjoy the relative advantages they once did. I suspect past SP performance really is no guide to future… etc, with this one, and it’s now harder than ever to know what was the truer and fairer reflection of intrinsic value… £80, £37 or somewhere in between.

As I’ve surmised before, the valuation metrics can certainly support £50 or so, but maybe not a whole lot more on top.

"I am not generally a fan of share buy-backs but NXT management do it well and I like the capital gain it brings better than special dividends. They do not buy-back if they consider SP above fair value for company. "

I AM generally a fan of buy-backs - wherever conditions are conducive - but I know that opinions are mixed here, particularly among private investors (not that I think buy-backs are at all well understood in this community). But I would commute your statement to “NXT management DID it well, UP TO A POINT…”

Yes, Wolfson’s policy is (or at least was) transparent and disciplined, certainly compared to many, but it still means they were buying-back quite a lot of shares at a substantial premium to the current SP in the relatively recent past. Okay, perhaps they have the excuse of being overtaken by unpredictable external events - but this cannot excuse the decision to replace buy-backs with specials, right at the bottom, a major misstep by Wolfson IMHO (and I said as much at the time, on these pages). Maybe this move to switch it back to buy-backs will come to be seen as a timely correction… or maybe the wrong way around, once again? Either way, Wolfson’s reputation as Master Capital Allocator has taken a knock, and still to recover…


#7

The cynic in me feels that the decision to revert to share buybacks was in order to ensure that EPS growth will be in positive territory next year - assuming their prediction of £705m profit is correct.

Notwithstanding, a forward PE of around 11 doesn’t look too challenging for me; although, I agree with Bill that there’s probably not oodles of upside at the moment.