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Next down to neutral as UBS says limited upside following profit upgrade

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Next PLC (LON:NXT) has been downgraded to ‘neutral’ from ‘buy’ by analysts at UBS, but the bank has also hiked their price target for the retailer to 8,100p from 6,550p following a trading update in which it upgraded its full year profit forecasts.

In a note on Friday, the Swiss bank said following the upward revision to the company’s profit estimates on Tuesday there was now “less scope for further re-rating and upwards earnings revisions” over the next 12 months.

READ: Next makes small upgrade to full-year profit expectations but store closures bite

However, analysts also said that they disagreed with some shorter-term investors who “seem to view the current valuation as a selling opportunity”, although they added that much of the upside was already priced into the shares justifying the rating downgrade.

“Next is a best-in-class operator in apparel, focusing on Online growth, channel integration and the development of higher return platform businesses. While we still see potential long-term earnings upside and re-rating potential from scaling the platform businesses (a valuable business in a largely ex-growth apparel industry), our new analysis suggests the value of Next’s changing business model (incl. Total Platform) is appropriately reflected in the current multiple, limiting further re-rating”, UBS said.

Shares in Next fell 1.8% to 7,554p in late-morning trading.

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