RBC Capital upgrades Next to 'outperform'

(Sharecast News) - RBC Capital Markets upgraded Next shares to 'outperform' from 'sector perform' on Friday, hiking the price target to 8,800p from 8,100p as it said the retailer should continue to benefit from its strong online and credit offer.
The bank also sees an opportunity for Next to take further share in the heavily-disrupted UK mid-market, by leveraging its logistics, range and customer loyalty advantages

"Cash returns should be back on the cards from next year and valuation looks reasonable given its potential for strong online growth and cash returns," RBC said, hence the upgrade.

It said Next has among the most defensive and balanced exposure in the sector, given its high weighting to online related activities, which generated around 56% of sales and 63% of profit prior to the pandemic. Next also has higher than average exposure to UK retail parks, and to homewares sales, which make up around 20% of the total.

"Having deleveraged its credit offer in 2019 due to the pandemic, we see an opportunity for it to convert recently acquired cash customers to credit this year and to take further share due a more price competitive offer," RBC said.

"We see potential for Next to offer a durable mid single digit top and bottom line growth rate, and in addition indicate a circa 5%+ cash yield, giving a double-digit total annual return for shareholders."

At 0920 GMT, the shares were up 1.8% at 7,778p.