Broker snap: Nomura downgrades Next after strong run

20th May 2013 10:53

Nomura has downgraded its rating for High Street giant Next from 'buy' to 'neutral' after the recent strong performance in the share price.In a research report on Monday morning, the broker said: "In our view, Next remains one of the best allocators of capital and most innovative cost managers in the retail sector. Management has maintained consistent high hurdle rates for new capital, while not assuming growth in its product markets and planning costs and cost innovations accordingly. "Its product strategy over time has eschewed competition at the commodity end of the apparel market and sought to offer a point of difference to customers, allowing it to retain more of the gains from supply-chain efficiencies for shareholders."Nomura added that while Next's management is "best-in-class", this is increasingly reflected in the stock's valuation. Increasingly returns have meant that the shares have re-rated strongly from January 2011 when they were trading at 8.4 times forward earnings - they now trade at a price-to-earnings multiple of 14."At this level management has been clear that it is less likely to buy back shares, as the return it can generate for equity shareholders is diminishing (unless its cost of capital falls further or profit forecasts are upgraded, neither of which we see as likely at this juncture)."Nomura's target price for the stock has been left at 4,450p.BC