7:59 cut – Next plc (NXT)


I wouldn’t normally think too much about, let alone write about FTSE 100 companies because it is very difficult to get an edge over other market participants in companies of this size. While for a company like Wey Education (which, incidentally, currently has effectively no broker coverage) there are fewer than 10 people who have have gained as much knowledge and insight into the company as me (which is not to say my conclusions are correct), with Next plc I probably rank somewhere in the 1000s and even with a lot of effort would find it very difficult to get inside the top 100.

(Incidentally, if you think are also in the top 10 for Wey and we are not already in contact, please get in touch – I’d love nothing more than for 10 of you to do so and prove me wrong!)

However Next is very interesting because of the quality and detail of its reporting and its read-across to the high street and general consumer business climate. And this is why I (and literally thousands of others) will have read their trading statement this morning (or, given the timing, will be reading it over the next week or so).

The other reason for writing about Next is because I can. Since I decided to invest full time I have been increasingly aware of conflicts between writing and investing. There are conflicts with my portfolio (e.g. if I think a share is getting fully priced and have been reducing I hardly want to risk compromising the possibility I might be able to sell the rest at an overvaluation by writing my opinion), with those of other investors I talk to (even if they have merely confirmed my opinion, it is hardly going to go down well if I publicly repeat the gist of what they said to the detriment of their portfolio) and with management (they are naturally less likely to be forthcoming if I am publicly critical of them or their business’s prospects). Due to its size, none of these factors apply to Next.

Take aways from Trading Statement

  • High-street (and retail park) retail continues to fall, but modestly (-3.9% Q4 2019 vs -9.2% in Q4 2018)
  • There is no obvious Q4 election effect in clothing (edit: confirmed directly)
  • They suspect a positive Q4 contribution from the weather, helped by having the right amount of the right stock (as ever)
  • Online growth shows acceleration
  • HMRC are accelerating payment terms for corporation tax, significantly affecting cashflow (edit: this comes on top of the standard rate now expected to remain at 19% from April rather than being cut to 17%).

All these factors potentially have read-across to the kind of small and micro-cap stocks that are my bread and butter. The most relevant ones for me are ShoeZone and (edit: to increasingly lesser extents, United Carpets, Creightons and UPGS).

(edit: after a further review I added to ShoeZone this morning)

(edit: HMRC payment terms only affect companies with over £20m profits: https://www.bdo.co.uk/en-gb/insights/business-edge/business-edge-2019/corporation-tax-new-quarterly-instalment-payments)

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