Next stays streets ahead of rivals with 12% rise in profits

The Investment Column
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Next's chief executive, David Jones, liked his company's latest set of results so much he set his dark business suit off with a vivid orange shirt in sartorial celebration. No matter that he looked like a Liquorice All-sort, you could hardly blame him for putting on the style.

The Next phenomenon runs on and on and the new fashion for bold-coloured men's shirts is just one area where Next has got its buying just right. There may be a feel-good factor in the economy but Next's results are still high streets ahead of rival retailers.

Pre-tax profits were 12 per cent ahead at pounds 158m and both the high street stores and the Next Directory catalogue are firing on all cylinders. Sales at the stores were 20 per cent ahead on increased selling space of 7 per cent. Next Directory achieved a 31 per cent sales increase and the performance in both areas has continued into current trading.

Next continues to squeeze higher sales per square foot from its high street space with the figure rising from pounds 483 to pounds 606 over the past two years. Analysts agree that there is still more to go for and the group will open 75,000 more square feet of space this year, representing a 7 per cent increase on the total.

Next may snap up some of the Littlewoods sites but is not going to bid for the whole chain of 135 stores.

The company is still treading carefully in France and the United States but is set to expand its franchise stores from 30 to 45 next year with more outlets in Japan, the Far East, the Middle East and Europe. With losses reducing in the US, Next hopes to generate profits of several million from its franchises in two or three years.

Another area of opportunity is financial services. Next has been talking to possible partners and is likely to make its first foray into the market in the next 12 months. Credit cards are likely to be the first product launch but Next seems keen on the M&S approach to the sector, which could mean PEPs and pensions too. This will be a useful add-on to Next's core business but is not likely to be a large profit contributor in the short term.

So while Next looks set fair for the next few years it will soon have to start thinking about a big strategic move if it is not to run out of steam. The pounds 165m cash pile will provide a useful war chest.

There is little doubt that in a strong clothing market Next is the quality stock of the sector. The shares have performed amazing feats in the past five or six years and on analysts' profit forecasts of pounds 186m for this year, they trade on a forward rating of 18 times. Though this sector is strewn with banana skins, this seems a deserved premium. Still worth holding.

Expectations build at Barratt

Neither Sir Lawrie Barratt nor his highly regarded chief executive, Frank Eaton, are prone to outbursts of enthusiasm but you didn't have to look too hard between the lines of yesterday's interim statement to realise the housing market is in rude health once more and Barratt in pole position to benefit from its recovery from seven long years of recession.

Profits of pounds 24.8m, a 30 per cent rise, provided firm evidence that Barratt is well on track to dominate the volume end of the housing market again. It buys land well, builds on it efficiently and, thanks to a popular part- exchange scheme, sells quickly. A target of 11,000 houses a year seemed fanciful last year but now looks achievable, a fitting swan-song for Sir Lawrie, who at 70 is preparing for his second retirement.

Barratt has carved itself a good position in the South-east, where the company reckons all the action is. Despite pouring cold water on recent forecasts of booming house prices, Barratt admits that in the capital at least prices are strong and it is as well placed as any to benefit from that.

Staging a pounds 90m rights issue last May represented unbeatable timing, allowing Barratt to build its land bank at a sensible price. During the half-year land was bought at just 23.8 per cent of expected selling price, an impressive ratio that stores up potential profits. That reflects the company's skill in buying brown sites, land that had a previous use before being turned into housing plots.

Reservations running more than 20 per cent ahead of last year and advance contracts worth over pounds 200m mean analysts' forecasts that profits will reach pounds 68m this year and pounds 81.5m next time should prove conservative. On those figures, the shares, which have moved sideways for a year after a stunning outperformance since 1992, trade on a prospective p/e ratio of 14 falling to 11.5. At 266p, up 3.5p, they look good value.

Surge in poster ads boosts Maiden

Maiden, the outdoor poster specialist which came to the market last May, is riding high on the back of the surge in advertising spend in general and the popularity of big electronic outdoor poster sites in particular. Spending on the outdoor poster market grew 10 per cent last year and posters have increased their share of the display advertising market from 4.7 per cent in 1993 to 6 per cent, proving an effective competitor for TV.

Maiden's turnover surged by 51 per cent to pounds 55.1m last year, and with margins rising from 16 to 17 per cent, operating profits before exceptionals leapt an impressive 62 per cent to pounds 9.5m.

Moving the head office created a pounds 700,000 exceptional property charge but this was offset by a 45 per cent cut in interest charges to pounds 1.7m, and profit before tax trebled to pounds 6.85m. A leap in the tax charge held earnings per share before exceptionals to 13.6p and the group is paying a final dividend of 3.6p

The results are below the optimistic pounds 8m the four broking houses who follow the stock had expected, but Maiden's chief executive, Ron Zeghibe, painted a glowing picture of prospects. With almost 26,000 sites, nearly 20 per cent of them illuminated, Maiden is one of the largest outdoor advertising companies and the market leader in the large format poster sector.

The group spent over pounds 4m on its sites last year, including pounds 1m on the illumination of 800 sites, pounds 1.3m on a new network of back-lit sites and pounds 800,000 on an acquisition. It recently signed an agreement with Safeway which will extend its presence in the small six-panel poster market. Yesterday it renewed its concession with Railtrack until March 2004.

Capital expenditure will at least equal last year's but analysts are still looking for a profit of pounds 10-11m this year and earnings of 17-18p a share. The shares rose 7.5p to 324p yesterday, between 18 and 19 times forecast earnings for the current year. The outlook is bright but that rating factors in much of the good news.

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