Shares in fashion retailer Next slip 1.3 percent to be among the topfallers on a rising FTSE 100, after Nomura cuts its rating on thecompany to "neutral" from "buy" on valuation grounds, according to traders.
Next has risen to 14.4 times its one-year forward earnings per shareestimate from around 8.8 times in January 2011, according to Thomson ReutersDatastream, with its price-to-earnings (PE) relative to the FTSE 350 re-rating from a 17 percent discount to an 18 percent premium in the sameperiod.
Next's five-year average PE is 10.446 times, compared with 10.057 times forthe FTSE 350.
"At this level management has been clear that it is less likely to buy backshares ... Near-term valuation is thus more dependent on EBIT (earnings beforeinterest and taxes) growth (est. +4 percent) unless forecasts are upgraded orthe cost of capital falls," Nomura says in a note.
In the short term, Nomura says the group faces some challenging comparativesin the second quarter and its near-term preference is for Marks & Spencer, which it rates as "buy".
Reuters messaging rm://david.brett.thomsonreuters.com@reuters.net
Marks & Spencer (MKS)
Next (NXT)