Next share price: Berenberg downgrades stock

Next’s (LON:NXT) share price has been hit by a rating downgrade as Berenberg slashed its stance on the FTSE 100 group to ‘hold’ from ‘buy’ and cut the price target to 7,300 from 7,600p.

According to the broker, 2016 will be a challenging year for the British retail sector, with increased competition bringing potential pressure on margins. While Next remained the multi-channel leader in the UK and provided longevity of top-line growth, there was a potential threat from consumer demand for free home delivery, Berenberg cautioned. It added that the company’s best-in-class click-and-collect proposition had played a key role in the success of its Directory business, offering a convenient proposition at a low cost to the consumer. “It is, however, the only form of free delivery available to the customer and we see some risk that, as consumers become more demanding, Next will be forced to offer free delivery to home, eroding profitability,” the broker said.

Berenberg also pointed to the disruption likely from the introduction of the national living wage from April 2016. However, it also said that Next’s flexible store estate protects profitability and cash. The broker expects £1.7 billion to be returned to shareholders in ordinary and special dividends over the next three years.
Next’s shares have been trading higher today, unaffected by the rating downgrade. As of 13:31 GMT, the stock was changing hands at 6,815.00p, 1.11 percent up intraday. Meanwhile, the FTSE 100 was 1.20 percent better off at 6,085.10 points.
As of 13:46 GMT, Friday, 26 February, NEXT plc share price is 6,817.50p.