Next and Vectura

“Markets were weak across Europe and Asia following yesterday’s choppy trading and a rare profit warning from Apple spooking investors around the world. “The consumer electronics giant’s struggles are tied in closely with market fears about trade wars and the health of the Chinese economy, with a weak revenue performance in the last three months of 2018 blamed on the Greater China region. “Mining firms and other names reliant on Chinese consumption such as Burberry were on the back foot with the FTSE 100 index falling 0.3% to 6,716.38,” says Russ Mould, Investment Director at AJ Bell.

Next

“Retail is currently about survival of the fittest and Next is certainly looking like one of the healthiest in its pack.

“A decade ago, Next reporting a 9.2% drop in high-street sales would have been disastrous. Yet today no-one will be surprised by such a performance as it reflects a structural change in how we shop for goods.

“The fact that Next has barely changed its earnings guidance despite high-street gloom is deemed a major success by investors, hence why its share price has shot up on the news.

“The future is all about the shift to online and Next is certainly making good progress with 15.2% sales growth through this channel in the two months to 29 December. However, it will pay to watch profit margins closely as Next has already flagged increased operational costs associated with higher online sales.

“Despite the shift online, Next is unlikely to become an internet-only business in the long-term. Its high street shops could still play a role as a means of showcasing its products and to act as collection points for click and collect orders.

“The company flagged earlier this year that it would run a trial to see if its stores would work as delivery points for third party non-competing businesses, thus creating another revenue stream and an additional catalyst to get people through its doors.

“Next is a best-in-class retailer which is striving to have superior customer service, good stock control, decent product range and clean, tidy stores. Those attributes should help it stand above the crowd.

“It also helps that the business is highly profitable, has a strong balance sheet and is cash generative which gives it the ability to cope with any margin pressures and any further decline in high street footfall.”

Vectura

“Sometimes it’s not a case of doing bigger business but of doing better business. While 2018 revenue guidance was left unchanged in an update from pharmaceutical firm Vectura, earnings were flagged to be ‘materially ahead’ of expectations.

“Improved margin performance, a larger contribution from higher return parts of the group and productivity improvements have all helped to enhance earnings, reflecting well on management.

“It has not all been plain sailing for the inhaler specialist. November’s failure in a late-stage study for a key asthma treatment was a recent setback, albeit one which is an occupational hazard in the pharma sector, and performance has been patchy for some time.

“Today’s news could suggest that the company’s strategy of moving its focus from higher risk early stage product development to partnerships with major companies and sales from licensed products is bearing fruit, a year after it was first announced.”

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