Next climbs as ‘existential crisis’ fears dismissed

FTSE hits record high, underpinned by weaker sterling and US rate rise expectations
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The FTSE 100 hit a fresh record high on Wednesday with Next among its biggest gainers.

Next has been the FTSE’s worst performer in the year to date, losing 20 per cent in the wake of its downbeat Christmas trading update, and has halved from its late 2015 peak.

Its slump means investors have priced in a “collapse in returns and cash flow” even though the business remains “fundamentally healthy”, Redburn Partners told clients.

“The Next brand is mature rather than malnourished,” said Redburn. “While it is no longer a vast growth engine, the franchise is not in the grip of an existential crisis in the way the extreme absolute derating of the equity suggests.”

Next closed 4.6 per cent higher at £40.03.

The wider market was underpinned by weaker sterling and rising expectations of a US rate increase. The FTSE 100 surpassed its previous record high set in mid-January by gaining 1.6 per cent, or 119.46 points, to 7,382.90.

Ashtead led the risers, up 5.7 per cent to £17.51, after Donald Trump’s spending pledge buoyed US-focused infrastructure stocks.

Aggregates maker CRH rose 4.9 per cent to £28.54 after giving a confident outlook with 2016 results. Even though US margins are at record levels, the current cycle in there is “longer and more developed” and is likely to last for a “few more years”, CRH said.

Tie-up speculation helped Aberdeen Asset Management add 1.7 per cent to 281.3p, which took its gain over the past three sessions to 5.5 per cent.

Martin Gilbert, Aberdeen’s founder and chief executive, said in 2015 that the fund manager is not seeking a buyer but has since suggested he is open to a deal similar to Janus Capital’s merger with Henderson Global Investors.

Imperial Brands edged 1.1 per cent higher to £38.37 after an upgrade to “outperform” from Credit Suisse.

“In a consolidating consumer staples industry Imperial Brands is beginning to look cheap on 13.5 times earnings with a 4.7 per cent yield,” said the broker. It highlighted that BAT is paying 16.9 times ebitda (earnings before interest, tax, depreciation and amortisation) to take full control of Reynolds American whereas Imperial is valued as just 12.2 times ebitda.

Carillion faded 5.7 per cent to 206.6p after its full-year results missed forecasts. Its services sector peers were in focus amid talk that a French utility was nearing an acquisition in the sector.

EasyJet was 0.7 per cent higher at 958p with Cantor Fitzgerald adding the airline to its “buy” list on valuation grounds.

Separately, FTSE confirmed after trading’s close that, contrary to predictions, easyJet will not be relegated from the FTSE 100 index as part of its quarterly review.

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