FTSE in-depth: Next bucks the selling frenzy

By Geoff Foster for MailOnline
Updated: 04:32 EDT, 16 March 2011

Thank goodness for Next. Shares of the fashion retailer shone like a beacon amidst the gloom, rising 37p or 2% to 1905p after High Street guru Tony Shiret, analyst at Credit Suisse, had positive things to say ahead of annual results on March 24.

Next step: The fashion retailer may acquire rival ASOS.

Shareholders will be delighted to hear that he has retained his target price of £30.

Shiret reckons Next plans to take its average selling price down, not up in Spring/Summer 2011. His examination of almost 20% of the current women's range shows average selling prices down by 7% year-on-year, which he says makes sense in the current economic climate.

After also analysing the balance of Next's retail profit between Next Retail (shops) and Next Directory (online and catalogue), he found that Directory has been more profitable on an underlying basis than people think and that has supported the profitability of Retail.

Next said in January that full-year pre-tax profits will be in the range of £540m to £555m. That is after first-half profits rose 15% to £213m with Next Directory contributing £101.3m, up from £83.3m.

There has been some speculation in the past that boss Simon Wolfson, a Conservative working peer and donor, could possibly one day soon decide to enhance shareholder value by breaking up the group before moving into politics full-time.

That would involve the £2bn demerger of its highly successful Directory business, which was launched by George Davis in 1988.

Another old tale recently suggested that Next could acquire rival online fashion retailer ASOS, £1 lower at 1726p. It has defied the recession, benefiting from a young core customer base and the migration of spending from the High Street to the internet.

On the other side of the street, luxury fashion group Burberry was sold down further to 1030p before rallying to finish 13p cheaper at 1110p. Fears that the fashion-conscious Japanese will slash consumer spending has sent investors sprinting for the exit.

Broker Nomura says Burberry has licensing agreements in Japan which contribute 4% of group sales and in total they generate 17% of group EBIT.

Following the Nikkei's further 10.6% collapse overnight on fears of a nuclear catastrophe in Japan, dealers in London took evasive action.

They slashed opening prices of all blue chips indiscriminately and before their City colleagues had a chance to digest their cornflakes, the flagship Footsie was 100 points lower.

Early selling was light and it soon recouped 40 points of the initial fall before the rug was then pulled from under it by wobbly Wall Street.

The Street of Dreams opened with a 200 point-plus decline and London was soon nursing a worrying 184 point fall. But against all the odds, it perked up on bear closing to close 'only' 79.96 points down at 5,695.28, its lowest level since early December and 6.7% below its February 52-week high.

Classified as one of the riskiest sectors and undermined by a fall in the copper price, heavyweight miners bore the brunt of some hefty selling. Fresnillo slumped 66p to 1433p and Eurasian Natural Resources 32p to 872p.

Insurers took a knock on worries about their equity portfolios and how far the stockmarket will fall in the wake of the Japanese disaster. Prudential declined 23p to 695p and Standard Life 6.8p to 210.7p. Amid rumours of margin calls on the stock, bid favourite Heritage Oil plummeted to 277p before closing 47p lower at 285.2p.

Renishaw fell 115p to 1585p. The precision engineer derives 12% of its sales from Japan. Worries about chip production disruption in Japan dragged chip maker ARM Holdings 8p lower to 517.5p. Toyota, Suburu and Honda motor dealer Inchcape reversed to 342p and closed 12.1p off at 354.7p on concerns its supply of vehicles will be hit.

Uranium explorer Kalahari Minerals nosedived 31.75p or 11.5% to 243.25p following concern over the future of the global nuclear power build programme amid fears of a major radiation leak from the nuclear complex in Fukushima.

The sharp fall also sparked speculation that Chinese resources group CGNPC will now scale back its 290p a share cash offer or walk away completely.

Buyers returned for satellite group Avanti Communications, 26.25p better at 450p. Broker Cenkos Securities pointed out that the shares had fallen from a post HYLAS 1 satellite launch high of 740p to a seven-month low of 427p.

The broker believes the current level provides a compelling buying opportunity and is confident the shares will reach £23 over the next two years.