What do the prospects really look like for our top companies? Over the next few weeks I want to take a closer at some of them, and run my eye over what their futures may hold.
Today, I’m starting with NEXT (LSE: NXT).
Now, I’m no fashion-follower (although I do own a NEXT dressing gown, which cost me £2 at a charity shop), but I reckon I can tell a company that’s the best in its business when I see it.
Here’s NEXT’s recent performance, together with current consensus forecasts for the next two years:
|
Year to Jan |
EPS |
EPS Growth |
Dividend |
Div growth |
Yield |
Cover |
|---|---|---|---|---|---|---|
|
2009 |
156.0p | -8% | 55p | 0% | 5% | 2.8x |
|
2010 |
188.5p | +21% | 66p | +20% | 3.4% | 2.9x |
|
2011 |
217.6p | +15% | 78p | +18% | 3.9% | 2.8x |
|
2012 |
253.9p | +17% | 90p | +15% | 3.4% | 2.8x |
|
2013 |
298.7p | +17% | 105p | +17% | 2.6% | 2.8x |
|
2014 (f) |
331.3p | +16% | 119p | +13% | 2.3% | 2.8x |
|
2015 (f) |
356.3p |
+8% | 130p | +9% | 2.5% | 2.7x |
That’s an impressive record of earnings. Even in the credit-crunch year of 2009, NEXT’s earnings per share (EPS) only fell 8%, and it has been powering on up since.
Doing it right
This covers a tough period for the high street, with competitor Marks & Spencer never really getting its head round which arrangements of fabrics the fashion-conscious will wish to drape themselves in each year — but NEXT just seems to know, and knows how to sell it.
NEXT has a policy of lifting dividends in line with earnings and of keeping them very well covered, so there really should not be any surprises on that front.
One thing Next has mastered well is multi-channel retailing, and for the half year to July 2013 its NEXT Directory online offering contributed 36% of the company’s total revenue of £1.68bn, after growing 8.3%.
We can see how NEXT’s fashion expertise and its success in embracing online selling has brought past rewards, but how realistic are those forecasts?
Brightening economy
Well, firstly, the consensus has been getting better all year, with the City regularly lifting its EPS and dividend forecasts.
A year ago the consensus suggested EPS of 302p for 2014 with a dividend of 111p, by six months ago that had firmed up to 318p and 117p respectively, and the trend has continued to the current 331p and 119p.
I expect 2015 forecasts to be raised in due course too.
In its half-year report, NEXT predicted full-year brand sales growth of between 1.5% and 3.5%, with pre-tax profit in the range of £635m to £675m for a gain of between 2.2% and 8.6%. Bottom-line EPS should rise between 12% and 19%.
The company identified growing signs that the credit squeeze might be over, and the crash in borrowing levels, which were unsustainable, looks like it may be bottoming out. This has been reflected in the returning health of the housing market too.
Keeping us informed
There is still a problem with falling real earnings, but all this underlines another thing I like about NEXT. It lets us know what it is thinking and is very open with its guidance — the analysts really don’t have a very hard job coming up with their forecasts!
To close, just a quick look at valuation. Despite NEXT being such a reliably successful company, its shares are valued on a P/E of only about 15.5 — that’s higher than the average of about 14, but that average includes the duffers too. And for 2015 forecasts, the P/E falls to 14.5.
So all in all, I reckon the next 12 months should be pretty good for NEXT.
