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02/05/2023 1
02/05/2023 2
Stock Chart showing 50% drop
02/05/2023 3
STRENGTH
02/05/2023 4
NEXT PLC STRONG OPERATING MARGINS
is 20%, > than
4%.
7%.
02/05/2023 5
But BOOHOO and ASOS is growing sales faster than NEXT!
But PEG RATIO of NEXT’s 0.61, compared with
BOOHOO’s 0.93 and
ASOS’s 5.03.
02/05/2023 6
NEXT PLC’s Operating Margins never went below 10% for the whole of the 21st Century!
02/05/2023 7
EARNING POWER OF NEXT PLCNext has consistently produce increasing levels of earnings through the years.
02/05/2023 8
Although, debt rose to £900m
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Should NEXT PLC be worried? A LITTLE
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In 2016, NEXT PLC’s Free Cash Flow £469m
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Free Cash flow covers debt in two years! IF, they continue to produce the goods.
AND, if NEXT’s management decides to stop returning cash to shareholders for two years.
02/05/2023 12
In fact, NEXT is a money churner, here’s what I mean?
+
=
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02/05/2023 14
Returned on Invested Capital is important, meaning
When NEXT invest £1,000 or $1,000 (if you are American) of EXTRA CAPITAL into the business, it earns between £300 and £500 (every year).
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Similar to having Savings Account with 30%-50%
02/05/2023 16
Secret to NEXT PLC’s earnings power
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First, a breakdown of total revenue between online and retail
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Second, a breakdown total earnings between online and retail
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What is behind NEXT’s online success?
CREDIT SERVICES!!!
02/05/2023 20
In 2016, the retailer earns £180m in interest charges (or 30% of total profits).
02/05/2023 21
What was NEXT able to make this amount?
1. They have 4m active online customers. 2. Online sales accounts for 45% of total sales. 3. NEXT charges 25% APR interest on its store cards.
02/05/2023 22
So, is an illegal way of making money? NO, because others do it.
02/05/2023 23
WEAKNESSES, (Or, perception of weakness)
02/05/2023 24
NEXT’s LIKE-4-LIKE SALES are terrible
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This is down to Buying too much real estate
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Net Cash Earnings covers less trade receivables
A possible signal of the share price weakness?
(See next slide)
02/05/2023 27
02/05/2023 28
Debt to Equity at 300%.
Not a problem when NEXT PLC is making £450m+ in free cash
flow a year.
02/05/2023 29
What IF, NEXT no longer earns any free cash flow
Then the debt issue will resurface!
02/05/2023 30
MARKET METRICS & VALUATIONS
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A TABLE SHOWING NEXT MARKET METRICS:
Metrics are below average historical levels, but not at all-time lows.
02/05/2023 32
The problem is the future direction of where “E” is moving
Will the future of NEXT’s earnings crash?
We will wait and see!
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Remember, NEXT PLC had a similar crash in the past!
In 2008/09, NEXT’s share price fell by 70% because earnings declined by 18%!
(See next slide)
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02/05/2023 35
SHARE PRICE FORECAST
Disclosure: Don’t take this as investment advice!!!
02/05/2023 36
SHORT-TERM
There could be a buying opportunity for NEXT, at £33-£35/share.
Target upside of £45-£47/share.
02/05/2023 37
MEDIUM-TERM (18 months horizon)
Much harder to predict as the following factors affect NEXT PLC’s Earnings:
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1. Inflation spike from the Weak British Pound
Input costs affect margins.
Clothing is not a necessary purchase, if food and energy prices spike as well!
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2. Bank of England raising interest rate
Although it is a low probability this could happen if inflation persists. Rising interest rates will caused mortgage costs to go up. Therefore, budgets for clothing could be cut!
02/05/2023 40
3. Will higher inflation leads to higher wages?
This can be offset if employees get a wage increase ≥ INFLATION!
It helps to stabilise the retail sector from rising costs.
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With these future cost inputs pressure, the next 18 months could see the trades around:
£30/SHARE.
if NEXT manages to sustain net income of £550m or more.
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CALL TO ACTION Tell me what you think about NEXT PLC as a business and where its going forward.
1. Will it have the same staying power than other retailers?
2. Is their fashion still relevant? 3. Will people continue to shop
elsewhere?
02/05/2023 43
Finally, my original article for this slide presentation (with in-depth explanation) is found by clicking the link below: “Is NEXT’s Share Price Offering at “50% OFF” Presents Value Buying Opportunity?”
02/05/2023 44
Where to find me:
My Website (Click Image)
My Twitter
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