Exane BNP cuts target price for Next, sees shares trading at a discount

Retailer Next fell off its perch, falling victim to downwardly revised earnings guidance, a misjudged buyback and a downbeat outlook reflecting less potential to grow its digital footprint and a move by customers away from credit, broker Exane BNP said.

The ongoing shift towards digital meant the retailer stood to lose market share, as its catalogues became increasingly irrelevant, analysts Simon Bowler, Graha Renwick and Georgios Pilakoutas said in a research note sent to clients.

Adding to the pressure on the company on that front, Next had already achieved its fair market share on the digital space, meaning that favourable tailwind was set to weaken.

Furthermore, the move towards cash and away from credit would also hurt the company, as cash customers tend o be less loyal and spend less to boot.

The end game is that over time approximately 25.0% of the group's profitability was at risk, although the declines were likely to be gradual, Exane BNP said.

As a result of the downsire risk the shares were likely to move towards trading at a 10.0% discount.

"We are mindful of a possible relief rally and of the limited downside, but nonetheless position Next as a relative underperformer in the sector."

Exane kept its 'underperform' recommendation in place but lowered its target price by 14.0% to 5,400p.