Monthly Archives: January 2017

Stocks in Focus: Next

This week I am writing about Next, the fashion retailer that provided a disappointing trading update last week. Next is often regarded as a bellwether for fashion retailers, many of which will provide their own trading updates later this week. Next had hoped to improve on the poor sales it had in the run up to Christmas 2015, which were hampered by understocking of popular items. However, it announced a modest fall in sales for the equivalent Christmas trading period in 2016 and a fall of 7% in the post-Christmas sales promotion period.

As with the rest of the retail sector, Next has had to contend with unusual weather patterns that have made stocking relevant seasonal items challenging. The British consumer is also moving away from spending on fashion, with data indicating people are spending more on leisure and experience activities than high street retail.

Looking forward, management guided towards ‘an even tougher sales environment for the retailers’ in 2017 and suggested a further fall in profits of between 2% and 14% for the year. Uncertainty over rising inflation eroding earnings growth and putting a squeeze on consumer spending were cited as challenges the company faces in the coming year. In an attempt to reassure investors, the group have adjusted its return of surplus cash to four quarterly dividends of equalling amounts.

The consideration for investors is now to assess whether Next is suffering from self-inflicted, company specific issues, or whether their figures are indicative of the wider fashion retailer landscape. It will be interesting to see whether other retailers’ announcements over the coming days shed any further light on this as we move into a very uncertain year for the UK retail sector.

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Stocks in Focus: Burford Capital Plc

This week I am writing about Burford Capital. Burford is the world’s largest speciality provider of investment capital and risk solutions for litigation.

The company announced on 3 January 2017 that it has sold several million dollars in participation interests in its possible future proceeds in its investment related to one of its largest claims.  While the sales proceeds are immaterial the price of the sales implies a value for the Petersen claims greater than previously predicted.

Litigation is a multi-hundred billion dollar industry and Burford supply financing options to this industry.  Burford have a large team of industry experts and each case is considered in detail before any finance is provided.  The vast majority of cases are rejected.  Financing is a growing area of litigation and Burford as the market leaders are in a strong position to take advantage of that growth.

The impressive returns on investment that Burford has managed to generate thus far have driven up the share price.  If the market matures with increased competition and the returns on investment were to fall then the share price would likely fall back commensurately.  The management are also quick to highlight that it is unwise to associate any value to outstanding claims as each case may go against Burford.

Burford’s share price has performed well over the last few years and it is the market leader in a growing sector.  Whether the company can continue this performance will depend on its ability to continue generating the return on investments that the company currently enjoys.  The company must remain prudent on the investments it chooses and management have proved thus far they have the expertise to choose the cases wisely.  Competition could also enter the market and increased regulation could impact margins, however the strong management and good sector outlook are positive indicators for Burford.

http://www.nwbrown.co.uk/library/