Why NEXT plc Has Great Growth Prospects

NEXT plc (LON: NXT) is going from strength to strength.

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NEXTnext (LSE: NXT) has an enviable record on our high streets, having come through the recession and credit crunch unscathed while rivals in the rag trade have struggled badly.

Rather than just wake up one day and notice that shoppers are using this new-fangled inter-thingy for more and more of their purchases, NEXT was one of the early movers into multi-channel retailing, with NEXT Directory gaining a nice share of the market.

Here’s what the result of the company’s vision looks like:

Jan EPS Change P/E Dividend Change Yield Cover
2009 156p -8% 7.0 55p 5.0% 2.8x
2010 189p +21% 10.4 66p +20% 3.4% 2.9x
2011 218p +15% 9.2 78p +18% 3.9% 2.8x
2012 254p +17% 10.4 90p +15% 3.4% 2.8x
2013 298p +17% 13.6 105p +17% 2.6% 2.8x
2014* 348p +17% 19.3 123p +17% 1.8% 2.8x
2015* 376p +8% 17.9 138p +12% 2.0% 2.7x
2016* 408p +8% 16.5 152p +10% 2.3% 2.7x

* forecast

In other circumstances it might be disappointing to see a firm’s dividend yield falling like that. But not when it’s for the right reason — just look at this for a five-year share performance, taking the price up to today’s 6,700p…

NXTprice01

That puts the shares on a pretty high forward P/E for the retail sector, of more than 19 for the current year and dropping only as far as 16.5 by 2016 — but compared to the FTSE forward average of just under 17, for a quality company it’s really not too stretching.

What are NEXT’s future growth prospects looking like?

Strength to strength

In October, NEXT reported an overall sales rise for its third quarter of 4.3% with a nine-month rise of 3%, which is pretty good going in the current retail environment. The star, unsurprisingly, was NEXT Directory, with a 10.7% boost in the quarter and 9.2% over all for the year-to-date. Next Retail sales were flat, which is really not surprising.

And when it came to Christmas, things were looking even better.

Total sales for the period from 1 November to 24 December soared by 11.9%, with NEXT Retail ahead 7.7% and Directory sales up 21% — and that took total sales growth for the year to date to 5%.

Full year looking good

The company updated its pre-tax profit guidance to a range of £684-700m, implying growth of between 10% and 12.6%. Basic EPS is expected to be up between 21.6% and 24.5%, and NEXT expects to have completed £296m in share buybacks.

And if that doesn’t look like a company with great growth prospects, I don’t know what does. Results should be with us on 20 March.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

> Alan does not own any shares in NEXT.

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