Broker snap: Nomura upgrades Next to 'buy'

3rd Jan 2014 10:29

Nomura has upgraded its rating for Next from 'neutral' to 'buy' after a bullish trading update on Friday, saying that the company has shown 'consistent execution'.The High Street retailer now expects pre-tax profit to total £684m-700m for the year to January 25th 2014, up 10-12.6% on the prior year, after achieving a rise in fourth-quarter sales ahead of expectations. In the Christmas period from November 1st to December 24th, total Next Brand sales jumped 11.9%, bringing year-to-date growth to 5%, helped by improvements in seasonal knitwear, nightwear, gift offers and increased confidence in online deliveries."We believe the order by 22:00 for free Next day to store offer, which had a much later cut-off than peers, will have been a driver of the accelerated (£12m relative to prior week) growth indicated for Christmas week, while the introduction of a smaller in-season catalogue may have helped sales in quieter periods," Nomura said.The broker has updated its forecasts for the company following the increased guidance and special dividend worth 50p a share. Its target price for the stock has been hiked from 5,380p to 6,500p."In our view, Next's strong delivery stems from its high hurdle rate, sensible planning assumptions and cost discipline, which have led it to its favoured position of 37% online sales participation and marketing leverage through its directory and credit offer."This combination is likely to continue to deliver," Nomura said.Next's share price raced ahead on Friday morning, surging by 8.98% to 6,026.51p by 10:24.BC