Retailer is one of the market's few success stories while Energis struggles on
Next is one of the few success stories in the UK retailing market as it continues to gather pace and take an increasingly large market share.
For the year to 6 August, Next is the seventh highest performing stock in the FTSE 100, posting returns of 19.25%, compared with the index returns of -11.27% over the same period.
Nigel Lanning, director of equities at Dresdner RCM, said the UK retailing industry has become relatively polarised between 'those that have it and those that don't' with Next being one of those that quite obviously has it. The retailer has been able to keep sales volumes up relatively well over a number of years. He said: 'We feel quite relaxed about Next as a company, although it is considered somewhat expensive relative to its peers, it is a success in its area.'
Next is on a P/E of 18.5 times, which Lanning said is not a million miles off competitors in its sector. As of 6 August, Marks & Spencer was on a P/E of 20.27, while clothing retailer Laura Ashley was on a P/E of 23.88.
Lanning said: 'Next has retained its flair and continuity in fashions while at the same time having level-headed management. It has an unusual combination of a number of interesting features and while it did have a hiatus in performance terms, for the past decade it has performed well while its competitors have struggled.'
Next is not categorised as a value stock but is considered a growth play, although more subdued than other growth stocks, due to its ability to continue to expand.
'The number of stores it has has risen 12% in the past six years, but in terms of store space it is up 70%, carving out a bigger market share through expansion.'
Energis is one of the FTSE 100's worst performing stocks for the year to 6 August, down 75.33% compared with a fall of 11.27% in the overall index. As of 6 August the only stocks that had fallen further than Energis were Colt Telecom, which Lanning noted is an almost identical type of company to Energis, and Marconi.
As a telecom company it is not surprising that Energis has underperformed, as sentiment on these stocks has been negative since last year. With the sector overall continuing to show little signs of recovery, Lanning remains negative on the company and Dresdner does not have any holdings in the stock.
He said: 'You could argue that the erosion of value in the telecoms sector is such that now is a good time for investors to go bottom fishing, but there continues to be further disappointing news from the sector relating to huge excesses of capacity. It is hard to see when it will be put right.'
Way overbought in 1999 when it was being sold at about £8, subsequently falling by £7, the company is mired in oversupply issues and is unlikely to turn around until demand in the sector catches up with supply, he said.
As telecoms flounder, there may be the possibility for further merger and acquisition activity in the sector but investors are unlikely to make any money out of it, Lanning added. Overseas groups which may see buying opportunities to get a toehold in the UK market are likely to be dissuaded because those who would want to buy are already financially stretched.
One positive for Energis, separating it from other telecoms, is its relatively strong parent, National Grid.
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