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Is NEXT PLC SHARES ON OFFER AT 50% OFF?

A look at the investment opportunity presented by NEXT PLC (since the stock fell by 50%). Details include the retailer’s earnings power, liquidity issue, comparison with BOOHOO and ASOS, market valuation and share price forecast (Short- and Medium-term).

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Is NEXT PLC SHARES ON OFFER AT 50% OFF?

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  1. Stock Chart showing 50% drop

  2. STRENGTH

  3. NEXT PLC STRONG OPERATING MARGINS 4%. is 20%, > than 7%.

  4. But BOOHOO and ASOS is growing sales faster than NEXT! But PEG RATIO of NEXT’s 0.61, compared with BOOHOO’s 0.93 and ASOS’s 5.03.

  5. NEXT PLC’s Operating Margins never went below 10% for the whole of the 21st Century!

  6. EARNING POWER OF NEXT PLC Next has consistently produce increasing levels of earnings through the years.

  7. Although, debt rose to £900m

  8. Should NEXT PLC be worried? A LITTLE

  9. In 2016, NEXT PLC’s Free Cash Flow £469m

  10. Free Cash flow covers debt in two years! IF, they continue to produce the goods. AND, if NEXT’s management decides to stop returning cash to shareholders for two years.

  11. In fact, NEXT is a money churner, here’s what I mean? + =

  12. Returned on Invested Capital is important, meaning When NEXT invest £1,000 or $1,000 (if you are American) of EXTRA CAPITAL into the business, it earns between £300 and £500 (every year).

  13. Similar to having Savings Account with 30%-50%

  14. Secret to NEXT PLC’s earnings power

  15. First, a breakdown of total revenue between online and retail

  16. Second, a breakdown total earnings between online and retail

  17. What is behind NEXT’s online success? CREDIT SERVICES!!!

  18. In 2016, the retailer earns £180m in interest charges (or 30% of total profits).

  19. What was NEXT able to make this amount? 1. They have 4m active online customers. 2. Online sales accounts for 45% of total sales. 3. NEXT charges 25% APR interest on its store cards.

  20. So, is an illegal way of making money? NO, because others do it.

  21. WEAKNESSES, (Or, perception of weakness)

  22. NEXT’s LIKE-4-LIKE SALES are terrible

  23. This is down to Buying too much real estate

  24. Net Cash Earnings covers less trade receivables A possible signal of the share price weakness? (See next slide)

  25. Debt to Equity at 300%. Not a problem when NEXT PLC is making £450m+ in free cash flow a year.

  26. What IF, NEXT no longer earns any free cash flow Then the debt issue will resurface!

  27. MARKET METRICS & VALUATIONS

  28. A TABLE SHOWING NEXT MARKET METRICS: Metrics are below average historical levels, but not at all-time lows.

  29. The problem is the future direction of where “E” is moving Will the future of NEXT’s earnings crash? We will wait and see!

  30. Remember, NEXT PLC had a similar crash in the past! In 2008/09, NEXT’s share price fell by 70% because earnings declined by 18%! (See next slide)

  31. SHARE PRICE FORECAST Disclosure: Don’t take this as investment advice!!!

  32. SHORT-TERM There could be a buying opportunity for NEXT, at £33-£35/share. Target upside of £45-£47/share.

  33. MEDIUM-TERM (18 months horizon) Much harder to predict as the following factors affect NEXT PLC’s Earnings:

  34. 1. Inflation spike from the Weak British Pound Input costs affect margins. Clothing is not a necessary purchase, if food and energy prices spike as well!

  35. 2. Bank of England raising interest rate Although it is a low probability this could happen if inflation persists. Rising interest rates will caused mortgage costs to go up. Therefore, budgets for clothing could be cut!

  36. 3. Will higher inflation leads to higher wages? This can be offset if employees get a wage increase ≥ INFLATION! It helps to stabilise the retail sector from rising costs.

  37. With these future cost inputs pressure, the next 18 months could see the trades around: £30/SHARE. if NEXT manages to sustain net income of £550m or more.

  38. CALL TO ACTION Tell me what you think about NEXT PLC as a business and where its going forward. Will it have the same staying power than other retailers? Is their fashion still relevant? Will people continue to shop elsewhere?

  39. Finally, my original article for this slide presentation (with in-depth explanation) is found by clicking the link below: “Is NEXT’s Share Price Offering at “50% OFF” Presents Value Buying Opportunity?”

  40. Where to find me: My Website (Click Image) My Twitter TWITTER ME

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