Next shares are a ‘hold’ as it reassures investors with a 7.1% rise in pre-tax profits

Otmane El Rhazi from Mindful Money » Shares.

Next’s latest set of results cheered investors after it reported a 7.1% rise in pre-tax profits to £347.1m and reassured the market over the impact of the higher minimum wage

On Thursday in its half-year results, the High Street stalwart also announced a 2.7% rise in sales to £1.9bn, with full price sales rising by 3.5% which was slightly better than expected while the interim dividend was raised 6% to 53p.

Within the report Next said it expects the government’s new living wage to lead to a £2m increase in its wage bill next year and ultimately to add £27m a year by 2020. The group said it believes that is manageable but prices might have to rise 1% if there are no improvements in productivity.

Sales and profit guidance for the full year were unchanged and the company expects better sales in the second half, partly due to weaker comparative figures from last year. Following the update, by 1.41pm its shares had edged 15p higher to 7,690p. But over the past two years, the retailer has enjoyed a 51% share price hike, while over 12 months the stock is 7% higher.

The broker consensus towards the stock is presently pointing to a ‘strong hold’, marking a slight improvement in sentiment over the past three months. Analysts at both Canaccord Genuity and Investec have reiterated their own ‘hold’ recommendations while Cantor Fitzgerald is more bullish and has Next down as a ‘buy’.

Ian Forrest, investment research analyst at The Share Centre recommends Next as a ‘hold’ for “medium risk investors seeking a balance of growth and income”. He said: “The news shows Next continues to perform well and will have reassured investors that the impact of the new higher minimum wage should not be significant for the company.

“The company continues to expand its stores and online presence and, investors will note, Next is returning a significant amount of cash to investors in the form of special dividends. With much of this already reflected in the shares, we prefer Marks & Spencer in the sector due to its more attractive valuation.”