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FTSE falls but Next soars on turnaround hopes

Next soars after upgrade sparks turnaround hopes, while FTSE 100 falls, as hawkish Bank of England kicks off sterling rally.

 
FTSE falls but Next soars on turnaround hopes

Shares in Next (NXT) have surged after the clothing retailer upgraded full-year sales and profit forecasts, following strong performance from its online Directory business.

Next topped the FTSE 100, jumping 10.1% to £48.69. The UK blue-chip index fell 55 points, or 0.7%, to 7,3244, hurt by a jump in the pound, up 1% against the dollar at $1.334, as the Bank of England struck a hawkish tone despite keeping interest rates on hold. A strong pound tends to hinder the FTSE 100, whose members rely on overseas markets for around three-quarters of their earnings.

Next said it expected retail sales to come in between 2% down and 1.5% higher, an upgrade on previous guidance of between 3% down and 0.5% up.

While its store-based business continued to struggle, with sales down 8.3% over the same months to the end of July, and profits down by a third, sales in its online Directory business were up 5.7% and profits 6.3%.

The group also flagged it was likely to be left with £53 million of surplus cash at the end of the year, which it would use for share buybacks.

'Our performance over the last three months has been encouraging on a number of fronts and whilst the retail environment remains tough, our prospects going forward appear somewhat less challenging than they did six months ago,' it said.

'A modest upgrade it may be, but Next's improved assessment of the effectiveness of remediation efforts has gone a long way to repairing sentiment,' said Ken Odeluga, market analyst at City Index.

Mike van Dulken, head of research at Accendo Markets, added that investors might be encouraged the upgrade could kick off further positive surprises.

'Shareholders may even be wondering whether today's upgraded guidance figures are conservative, destined for a beat to ensure a 2016-17 run of downgrades is water under the bridge,' he said.

'Especially with an earlier-than-usual arrival of cooler weather that could kick-start the run-in to the key Christmas period via increased sales of bigger ticket heavier autumn and winter items.'

The news will buoy Neil Woodford, one of the company's biggest investors, who holds 1.7% of his Woodford Equity Income fund in the stock and 2% of his Woodford Income Focus fund.

His successor at Invesco Perpetual, Mark Barnett, is also a big backer, holding the company in his Invesco Perpetual Income and High Income funds.

Next buoyed rival retail stocks, with Marks and Spencer (MKS) jumping 2.8% to 333.6p and Primark owner Associated British Foods (ABF) rising 1.1% to £31.90.

Momentum slows at Morrisons 

Morrisons (MRW) was meanwhile rooted to the bottom of the index, down 5.4% at 232.2p, after reporting slowing sales growth.

'With rivals like Asda redoubling efforts on pricing and UK wage growth lagging behind inflation, one gets the feeling there remains much work to be done,' said George Salmon, equity analyst at Hargreaves Lansdown.

'We can't help notice that the momentum built earlier in the year has faded a touch.'

On the FTSE Small Cap index, shares in Interserve (IRV) crashed 54.5% to 69.7p as the support services and construction company issued its third profit warning in 18 months after 'disappointing' July and August trading.

It also warned the cost of exiting its energy from waste contracts was likely to be more than the £160 million previously flagged.

That will serve as a blow to Artemis fund managers Derek Stuart, Andy Gray, Ed LeggetWilliam Littlewood and Kartik Kumar, who are among the biggest backers of the stock, holding it in their UK Special Situations UK Select and Strategic Assets funds, according to Thomson Reuters data.

Peel Hunt analyst Andrew Nussey placed his 200p target price under review on the news.

'We have little choice but to suspend estimates at this stage as we have no insight into the quantum of trading issues and potential for resolution,' he said.

Among 'mid-cap' stocks, shares in Spire Healthcare (SPI) tumbled 16.1% to 260p as the company was hit by £27.6 million of costs, after it settled claims relating to Ian Paterson, a former breast surgeon facing jail time for carrying out operations on patients he wrongly diagnosed.

Profits at the healthcare firm slumped 75% over the first half of the year.

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