Shares in high street fashion retailer Next gain 2.9 percent, reversingearly losses to be among the top performers on a falling FTSE 100, as acontinuing share buyback programme and a near 17 percent rise in its dividendsweeten investors after it failed to produce upgrades to guidance.
Next reports that its earnings per share climbed 16.6 percent to 297.7pence, partly reflecting a 241 million pounds share buyback, while its dividendwas 105 pence, up 16.7 percent.
"An ongoing share buyback programme underpinned the shares, whilst a 17percent increase in the dividend was due reward for shareholders, even thoughthe yield (2.3 percent, according to Thomson Reuters data) remains low incomparative terms," says Richard Hunter, head of equities at Hargreaves LansdownStockbrokers.
Next, however, could only meet guidance with a 9 percent rise in 2012-13profit, potentially placing pressure on the valuation of its shares, which havemore than quadrupled in value since 2008, compared with the FTSE 100 up roughly20 percent in the same period.
"We plan to leave forecasts unchanged. We may remove the current 10 percentdiscount applied to our discount cash flow-based target price (under review)given Next's consistent financial delivery. We thus expect to remain holders.The management and strategy are industry-leading, but this is reflected in therating," Investec writes in a note.
Next's 12-month forward price-to-earnings of 13.1 times is the highest amongUK high-street retailers such as Marks and Spencer, and 14.6 percentabove its historical average, according to Thomson Reuters Starmine data.
Although not particularly challenging compared with other sectors, given theweak macro economic backdrop Next could come under pressure trying to meet itsmarket implied 5-year earnings per share compound annual growth rate of 5.4percent. That compares with Marks and home improvements retailer Kingfisher whose earnings are expected to contract by 4.3 percent and 3.1 percent,respectively, over the same period.
Reuters messaging rm://david.brett.thomsonreuters.com@reuters.net
Kingfisher (KGF)
Marks & Spencer (MKS)
Next (NXT)
