• 11 October, 2017 News

    Next seen as ‘deteriorating’ force, Morgan Stanley downgrades shares
    analysts have stated that it will be “extremely challenging” for the group to keep such elevated margins Next seen as ‘deteriorating’ force, Morgan Stanley downgrades shares

    Next’s profits aren’t likely to collapse, though Morgan Stanley believes that the UK clothing retail giant’s core business is “deteriorating” and ultimately downgraded its shares to ‘underweight’.

    Morgan Stanley was not completely bearish, noting that Next’s 20% margin last year was one of the highest of any retailer covered by the bank anywhere in the world.

    However, analysts have stated that it will be “extremely challenging” for the group to keep such elevated margins.Though, it doesn’t predict that the company will re-base its margins significantly lower under current management.

    As such Next is expected to be "very profitable, and very cash generative, over the next few years".

    "However, we believe that Next has been running up a proverbial down escalator for some time and there is growing evidence to suggest that it is finding this increasingly difficult to do."

    After offsetting declining sales densities in retail with gross margin increases, this strategy "may have run its course".

    While fundamentals in the Directory look healthier, the analysts think it "concerning" that sales in the core UK Next Directory business are also now beginning to fall, "suggesting to us that the Next customer proposition may be losing resonance with UK consumers”.

    Morgan Stanley’s 4,300p price target stayed unchanged, with the shares having heightened by 40%, and now trading at roughly 20% above this level.

    Contact one of our brokers today at, www.forex.ltd.uk.


    Abi Moses

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