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Next cut but Dunelm raised as RBC rejigs retailers
RBC Capital Markets has rejigged ratings of two retailers, with Next PLC (LON:NXT) downgraded and Dunelm (LON:DNLM) heading the other way.
“We continue to view Next as a blue-chip UK consumer proxy offering longer-term growth potential from its Total Platform.”
“However, we see more valuation upside for some other retailers, hence we have downgraded our rating to sector perform, the broker said.
RBC sees the Leicester-based retailer as being relatively exposed to higher interest rates and softer employment trends in the UK, given it generates over 85% of its sales here.
“We do see Next as more exposed to the lagged impact of higher interest rates, given its relatively high exposure to the 30-50 age group, where average spend on mortgages is highest,” it said.
As such we expect Next's underlying sales performance to be more in line with the market next year, particularly as benefits from less competition in the midmarket are in the base.
It has cut its pre-tax profit forecasts for by 1-2% and lowered its price target to 7,700p from 8,000p.
It sees more valuation upside for some other stocks such as AB Foods (LON:ABF), Boss and B&M European Value Retail.
RBC upgraded Dunelm to sector perform, pointing out it is trading towards the lower end of its historical valuation range.
“We view this as fair given Dunelm's well-managed, cash generative model, albeit a relatively challenging outlook for home related sales,” it said.
Shares in Next are down 1.1% while Dunelm is also lower, down 0.2%.
Elsewhere, JD Sports Fashion is up 1.2% after Citi initiated coverage with a buy rating.
Here’s a quick recap of the top risers and fallers on the junior market today
Shares in Strip Tinning Holdings PLC surged by 26% following the announcement of a new sales nomination for its glazing business.
Plexus Holdings PLC (LON:PLEX) was up 26% after securing a £175,000 rental contract award to supply SLB’s range of ‘Exact’ adjustable wellhead systems and ‘Centric’ mudline suspension equipment to Neptune Energy UK.
Shares of Aptamer Group PLC (LON:APTA) fell 11%, despite the company's announcement of operational progress and strategic advancements under its new management team.
A recent lull in customer confidence preceding a £3.6 million fundraise led to a temporary revenue shortfall compared to the previous year.
Hipgnosis Songs Fund Ltd (LON:SONG) slipped another 5% as it warned there would be no dividend this year due to a need to build up cash buffers to pay bigger-than-expected sums to its artists.
Kitwave Group PLC (LON:KITW) shares fell 3.7% following the wholesaler’s pre-close trading update for the financial year ending October 31.
BAT makes further investment in Canadian cannabis producer
British American Tobacco (LON:BATS) has invested a further CS125 million in Canadian cannabis producer, Organigram Holdings.
The deal builds on an initial investment by the FTSE 100-listed firm in 2021.
Organigram said the investment furthers BAT’s support of Organigram as a trusted partner and accelerates the focus on innovative cannabis science and R&D outside of combustibles.
The investment comes as BAT, the owner of Rothmans and Lucky Strike, pursues its “A Better Tomorrow” strategy looking to increase the alternatives to combustible cigarettes.
Organigram said it looked forward to continuing to leverage BAT’s global capabilities and scientific expertise.
BAT will subscribe for around 38.7 million shares at a price of C$3.22 per share, for gross proceeds of C$124.6 million across three tranches.