Next and Renishaw

Thursday, March 21, 2019 - 09:49

“Investors gave a mixed reaction to news that the US Federal Reserve does not expect to raise interest rates for the rest of 2019. Parts of the US market traded lower with particular weakness among banking stocks which will lose out from no interest rate growth. “Asia and Europe struggled to find direction with most markets flashing small amounts of red. The UK stock market fared better among larger companies with notable strength from miners, oils and pharma stocks helping to prop up the FTSE 100. But sterling weakness amid Brexit chaos weighed on the UK domestic-focused FTSE 250 index which fell 0.4% on Thursday morning,” says Russ Mould, Investment Director at AJ Bell.

Next

“Investors have tended to applaud any retail company that has hit earning expectations as a sigh of relief that life hasn’t got worse. However, that trend appears to be fading away as Next’s latest reassuring statement isn’t enough to win over the market.

“Full year results for the year to January 2019 are bang in-line and there is no change to guidance for the new financial year. Clearly investors were expecting something more given Next’s shares have fallen on the news.

“Next has earned a reputation for being one of the most resilient companies in the retail sector and so expectations are often high when it reports numbers. Over the years it has pleasantly surprised with generous dividends and strong trading. So one can only felt a slight sense of disappointment when the dividend is only lifted by 4.4% and sales growth guidance remains fairly mild.

“Ultimately the market backdrop continues to make life very difficult for Next and its peers. The full year results continue the theme of Next’s online gain and in-store pain. However, Next makes a fair point when it says that no one knows what the high street will look like in 10 years, but we do know that there will be people walking down it wearing clothes.

“Next’s job is to adapt and evolve with the changing market and it would be fair to say it is a doing a decent job so far.”

Renishaw

“Sometimes being a top-quality business just isn’t enough. Precision engineer Renishaw’s profit warning on softening Asian demand is proof of that fact.

“Renishaw does a lot of things you would want a company to do, most notably investing heavily in research and development to maintain its position at the forefront of high-end precision measurement equipment.

“The business is also diversified across several sectors, but this does not mean it is immune to fluctuations in the wider economy.

“Today’s warning will raise fears over the prospects of the wider engineering sector given Renishaw is probably better positioned than most of its peer group, with a level of expertise which sets up barriers to any potential competitive threats.

“After a tricky 2018, shareholders will be hoping the company can eventually weather the current economic uncertainty and return to a growth path.

“The market reaction this morning suggests that a degree of patience remains, with the sell-off fairly measured when you consider the typical response to a growth company which reveals disappointing performance.”

These articles are for information purposes only and are not a personal recommendation or advice.


The daily market comment is written by Russ Mould, AJ Bell’s Investment Director and his team. The article highlights the movement in the main index, winners and losers on the day and any macro-economic announcements.