Mindful Money’s weekly shares watch: Next, Marks & Spencer and Persimmon

4th January 2016


Next, due to publish its Christmas trading update on Tuesday, has witnessed its share price ease since its upbeat third quarter statement in October, with the retailer’s stock off by 6% over the past three months.

But a recent Confederation of British Industry (CBI) survey suggested UK retail sales in December were, while slightly better than last year, weaker than perhaps expected.

Ian Forrest, investment research analyst at The Share Centre, who is calling the firm’s stock a ‘hold’ said that he expects investors will scrutinise Next’s update to see if the good trading at both the high street stores and the directory business remain healthy.

He said: “Having initially provided a fairly downbeat forecast for sales in 2015, Next’s highly-rated chief executive Lord Wolfson has seen the group perform well and the market will be watching for any further rise in full year profit guidance of £810m-£845m.”

Keith Bowman, equity analyst, at Hargreaves Lansdown Stockbrokers notes that the mild weather may have potentially impacted winter garment sales and that he anticipates that some narrowing of management’s current full year pre-tax profit guidance of £810m to £845m may be forthcoming.

He said: “On balance, and with the company’s expected trading out-performance of rivals going forward, set against a valuation which is for now seen by some analysts as up with events, consensus opinion currently points towards a ‘strong hold’.”

Fellow high street stalwart Marks & Spencer reports its third quarter trading update on Thursday. With the group’s shares off by 17% over the past six months, shareholders will be eager to hear about how the group is progressing.

Forrest, who has M&S on his ‘buy’ list highlighted that the firm’s food business has seen steady growth so far this year, supported by new store openings.

He added: “The market’s focus has shifted towards the performance of the general merchandise division, which includes clothing. While sales have remained subdued investors are expecting to see an improvement in profit margins.

“The performance of online sales will also be a focus, following reports of a big shift towards that channel on Black Friday in November, as will any comments about prospects for the January sales.”

As with rival Next, Bowman expects that the mild weather is likely to have hindered UK winter garment sales, whilst “challenging macro-economic conditions are likely to have further weighed on many parts of its international business”.

He added: “More favourably, an improved online offering may have again aided, while a differentiated offering and consumer’s desire to indulge in celebration treats potentially further supports the Food business. As such, like-for-like General Merchandise sales are again likely to have declined, while Food sales on the same basis, marginally increased. On balance, and with management still focused on improving performance at its General Merchandise division, analyst consensus opinion currently points towards a ‘strong hold’.”

Thursday also sees house builder Persimmon, up a robust 30% over 12 months, deliver its fourth quarter trading update. Rated as a ‘hold’ by Forrest, he anticipates that the trading conditions from the first three quarters should follow through to the final one.

He said: “The company has been benefitting from healthy demand for new homes where it has seen visitor numbers remain high, the average selling price should come closer to £200,000 and legal completions for the year as a whole should not be too far off from increasing by 10%.

“Investors will be interested to find out about the prospects for 2016, and will focus on the forward order book along with the number of active sites and the number of plots they acquire.”

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