Broker snap: Next disposal may be mildly dilutive

4th Jul 2011 13:33

The decision by fashion retailer Next to stick to its knitting and get shot of its customer services operation, Venture, is a sensible one, in the eyes of Singer Capital Markets."Call centre operations were never truly core, and the industry remains extremely competitive," the broker asserts. "Management can now focus entirely on their core activities of retailing and sourcing," Singer added. With Next's current share buyback programme running ahead of schedule Singer has left its new earnings per share (EPS) forecasts broadly unchanged. "We estimate that the disposal and use of proceeds for buybacks is almost neutral for earnings, or possibly fractionally dilutive, particularly in the current year given it tends to be more profitable in the second half than the first half. The quantum is immaterial though," the broker said.Singer has trimmed its fiscal 2012 (the current financial year) profit before tax forecast to £559m from £565m previously, resulting in EPS of 235.3p.The following year's profit forecast is pared to £588m from £598m, and the EPS is more or less unchanged at 256.4p from the broker's previous forecast of 256.6p. Those changes mean Next trades on a price/earnings ratio for calendar 2011 of 9.8, dropping to 9.0 next year. The dividend yield is forecast to rise to 4.1% next year from a forecast 3.7% this year."The stock remains cheap but, as we expect consumer conditions to get worse before they get better, we remain on the side lines," Singer said, reiterating its "fair value" rating and 2325p price target. --jh