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Woodford and Barnett reveal why they are sticking by Next

Woodford and Barnett reveal why they are sticking by Next

A brace of star fund managers have reasserted their commitment to the shares of troubled retailer Next, which are down 26 per cent in the past year.

Mark Barnett, who runs the £5.4bn Invesco Perpetual Income fund, the £10.9bn High Income fund and the Edinburgh Investment Trust, revealed he is sticking with the retail giant's shares.

Mr Barnett said: “Beyond short-term share price performance, however, Next’s valuation is at all-time lows and continues to return cash to shareholders via a normal and special dividend.

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"The business has already paid two of four special dividends scheduled for 2017 and now, with greater visibility of full-year cash flows, expects to be able to pay a fifth from additional surplus cash.

“The dividend is backed by strong cash flows and flexibility both online and instore.

"Online, the retailer has recently upgraded its digital marketing offering to improve the appearance and functionality of its online catalogue.

"In-store, the business has flexibility over lease lengths and has made good progress in a number of larger, out-of-town sites, where demand has improved against a weakening high street backdrop.”

Mr Barnett is markedly less pessimistic on the outlook for the UK economy than are some of his peers.

Next shares have fallen from £56.40 to the present (4 September) level of £41.80.

Neil Woodford, who runs the £10bn Woodford Equity Income fund, said the present negativity in the market about the prospects for the UK economy has made Next shares a “compelling” investment.

Mr Woodford said: “As far as Next is concerned, this view was reinforced during the month following a meeting with Lord Wolfson, the company’s chief executive, which reassured us that the company remains a well-managed retailer, determined and well-situated to deliver long-term shareholder value.

"We added to the holding during the month (of June).”

David Smith, who runs the £308m Henderson High Income Investment Trust, said: “While there are uncertainties around the UK economy it’s important not to throw the baby out with the bathwater.

"The underperformance of domestics has created good buying opportunities in some good quality UK companies, and we hope our investments in these areas will enable us to deliver long term performance to our clients."

He said when Next delivered a recent trading update which was in line with its previous forecasts, yet saw the shares jumped forward.

Mr Smith’s view is that the market negativity is such that any good news will cause the shares of companies such as Next to make significant gains.    

david.thorpe@ft.com