Next Plc – Value Analysis (LONDON:NXT) : December 26, 2017

Capitalcube gives Next Plc a score of 78.

Our analysis is based on comparing Next Plc with the following peers – Marks and Spencer Group plc, TOM TAILOR Holding SE, Debenhams plc, Laura Ashley Holdings plc and Mothercare plc (MKS-GB, TTI-DE, DEB-GB, ALY-GB and MTC-GB).

Investment Outlook

Next Plc has a fundamental score of 78 and has a relative valuation of OVERVALUED.

Fundamental Score

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Company Overview

  • Considering peers, relative outperformance over the last year and the last month suggest a leading position.
  • It currently trades at a Price/Book ratio of (15.54).
  • We classify NXT-GB as Harvesting because of the market’s relatively low growth expectations despite its relatively high returns.
  • NXT-GB has relatively high profit margins while operating with median asset turns.
  • Changes in annual earnings (relative to peers) are better than the change in its revenues (relative to peers), implying the company is focused more on earnings.
  • NXT-GB‘s return on assets currently and over the past five years suggest that its relatively high operating returns are sustainable.
  • The company’s relatively high gross and pre-tax margins suggest a differentiated product portfolio and tight control on operating costs relative to peers.
  • While NXT-GB‘s revenue growth in recent years has been above the peer median, the stock’s P/E ratio is less than the peer median suggesting that the company’s earnings may be peaking and the market expects a decline in its growth expectations.
  • The company’s level of capital investment seems appropriate to support the company’s growth.
  • NXT-GB has the financial and operating capacity to borrow quickly.

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Leverage & Liquidity

NXT-GB has the financial and operating capacity to borrow quickly.

  • With debt at a relatively low 14.32% of its enterprise value compared to an overall benchmark of 25% (Note: The peer median is currently 28.07%), and a well-cushioned interest coverage level of 21.86x, NXT-GB can probably borrow quickly. We classify the company as Quick & Able in terms of its capacity to raise additional debt.
  • All 5 peers for the company have an outstanding debt balance.

NXT-GB has maintained its Quick & Able profile from the prior year-end.

  • NXT-GB‘s interest coverage is its lowest over the last four years and compares to a high of 28.74x in 2014.
  • The decrease in its interest coverage to 21.86x from 26.55x (in 2016) was also accompanied by a decrease in its peer median during this period to 7.68x from 17.63x.
  • Interest coverage rose 5.27 points relative to peers.
  • NXT-GB‘s debt-EV is its highest over the last four years and compares to a low of 7.60% in 2015.
  • The increase in its debt-EV to 14.32% from 8.72% (in 2016) was also accompanied by an increase in its peer median during this period to 28.07% from 23.03%.
  • Relative to peers, debt-EV rose 0.57 percentage points. Unlike the peer median, it is also below the 25% leverage benchmark.

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Key Liquidity Items

Company Debt/Enterprise Value (%) Current Ratio Interest Coverage (x) Cash Flow To Total Debt (%)
Marks and Spencer Group plc 31.16 0.69 6.19 40.04
TOM TAILOR Holding SE 37.41 1.08 0.65 1.26
Debenhams plc N/A 0.66 4.35 51.11
Laura Ashley Holdings plc 28.07 1.2 9.17 25.68
Mothercare plc 7.63 1.37 20.22 33.58
Next plc 14.32 1.88 21.86 80.12
Peer Median 28.07 1.14 7.68 36.81
Best In Class 7.63 1.88 21.86 80.12

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Company Profile

Next Plc owns and operates retail stores. It offers fashionable accessories for men, women and children along with home wares. It operates through following segments: NEXT Retail, NEXT Directory, NEXT International Retail, NEXT Sourcing and Lipsy. The NEXT Retail segment engages in the retailing of fashion and home products. The NEXT Directory segment involves in home shopping, including international online. The NEXT International Retail segment comprises franchised stores around the world. The NEXT Sourcing segment designs, sources and buys NEXT branded products. The Lipsy segment designs and sells its own branded younger women’s fashion products. The company was founded by Hepworth Joseph in 1864 and is headquartered in Leicester, the United Kingdom.

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