Next beats expectations but cautious on outlook, and major Darktrace investor offloads stock

“The FTSE 100 was in something of a holding pattern on Wednesday morning as investors await two central bank announcements which could define the year to come, let alone this week,” says AJ Bell investment director Russ Mould.

“The first of these comes tonight UK time as the US Federal Reserve is widely expected to begin tapering its financial support for the economy. It will hope this move has been telegraphed sufficiently to avoid a repeat of the taper tantrum which greeted a similar move by then Fed chair Ben Bernanke back in 2013.

“Tomorrow brings the possibility of the first hike from the Bank of England in three-and-a-half years from the current record low of 0.1%.

“The challenge facing central bankers is that if they move too soon on rates they risk choking off the recovery, too late and the evident inflationary pressures could run out of control. Timing will be everything.”

Next

“There must be a plaque in Next’s boardroom that says, ‘Always under-promise and over-deliver’ and true to this word the retailer has once again delivered a better-than-expected trading update. But celebrations may only extend to a cupcake rather than champagne as the company has a typically cautious view of the near-term.

“Next is essentially saying that 2021’s best trading conditions are already behind it, and that the final few months of the year could be a hard slog.

“There are plenty of reasons to justify this cautious tone. Family finances are coming under pressure from the higher cost of living and expectations of a near-term rise in UK interest rates could put a further squeeze on anyone with variable-rate borrowings.

“Supply chain issues are still a key risk with regards to stock availability. Its shops are looking well stocked but there remains the risk that Next doesn’t have everyone’s desired clothing size.

“The extra profit it has made in the past five weeks, beyond that originally forecast, will be gobbled up by costs related to marketing and transportation, hence why it isn’t raising full year profit guidance after a bumper third quarter.”

Darktrace

“There’s been a touch of Icarus about the experience of Darktrace since it listed in London at 250p in April 2021.

“An IPO which was priced to go amid concerns over the company’s links with controversial entrepreneur Mike Lynch gave way to a huge advance for Darktrace as it made its first steps as a public company.

“But having peaked at more than £10 just a matter of weeks ago the shares are now only a little more than half that level.

“The initial catalyst for the tumble was a research note from stockbroker Peel Hunt which told clients to sell the shares and set a price target at 473p.

“Some observers scoffed at such an aggressively negative target at the time but they’re not scoffing now as one of the company’s largest shareholders gets set to sell a third of their stake following the end of their lock-up period.

“The concern will be that other major shareholders will follow suit, piling further pressure on the share price.

“Investors will need to decide if these are just teething pains or if there are genuine questions about the credibility of the company’s artificial intelligence-based technology.

“Those who remain believers in the underlying story will probably be able to dismiss the recent volatility in Darktrace as noise for now, however the longer the shares keep falling, the more difficult it will be to tune out.”

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