FTSE 100 winners: Next, ITV and RBS

Even if BT (BT.A) continues to disappoint, Next (NXT), ITV (ITV) and Royal Bank of Scotland (RBS) provided a few reasons for cheer among followers of Britain’s best-known blue-chip stocks today.

The trio put on share price gains of 4% or more, with updates from Next and ITV helping to banish some of the pessimism about the consumer climate and RBS now much nearer to a dividend return after a settlement with US regulators.

The Next first quarter trading update was particularly impressive following an upgrade in full-year profits guidance to £717 million, from the £705 million forecast by the company in March and the market consensus of £708 million.

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Helped by the unusually warm weather in April and continued strong online trading, Next said sales for the quarter were around £40 million stronger than earlier forecasts. The total sales lift of 6% for the 14 weeks to May 7 compared with the 2.6% pencilled in by Cantor Fitzgerald.

Store sales fell by a smaller-than-expected 4.8%, while online sales were up by 18.1% rather than the 12% forecast in the market.

Even though the performance builds on better-than-expected festive trading, many analysts still remain cautious as Next has been up against weaker comparatives from a year ago. The company admits that it expects sales growth to be stronger in the first half of the year than the second half.

Cantor’s retail expert Mark Photiades has maintained his ‘hold’ recommendation and 4,650p target price. On current forecasts, he said Next trades on a 2018 price/earnings (PE) ratio of 12x.

Shares remain well below the £80 high in 2015, but are up 55% since last July as confidence improves with every reassuring or positive trading update.

Source: interactive investor         Past performance is not a guide to future performance  

Next is in the process of returning £300 million of surplus cash to shareholders, with £195 million worth of shares now bought back. This means earnings per share (EPS) will be enhanced by 4.7%, with guidance for EPS growth in the 2018/19 financial year now 3.7% compared with 1.4% previously.

ITV recently disappointed shareholders when new boss Carolyn McCall pulled the plug on the company’s five-year record of paying a special dividend. Shares fell to their lowest point in four years as a result in February, although they’ve staged something of a fightback since mid-April.

This was given extra momentum today after McCall reported some encouraging advertising trends for the first quarter of the financial year.

Net advertising revenues (NAR) from ITV’s family of channels are expected to be broadly flat over the first half of this year after falling in January and February.

When including online revenues and sponsorship, the broadcaster’s total advertising metric is forecast to be 2% higher. Revenues from ITV Studios were also 11% stronger in the first quarter at £382 million.

Further progress for ITV shares is now likely to hinge on McCall’s July strategy update. She plans to tell investors where ITV needs to be in three and five years’ time and how it should face the challenges of a changing media landscape where there is now much more content and more ways to watch it.

Meanwhile, Royal Bank of Scotland will be back in the sights of many investors today after agreeing a $4.9 billion (£3.6 billion) settlement with the Department of Justice in relation to the bank’s sale of risky mortgage-backed products in the run-up to the financial crisis.

Chief executive Ross McEwan called it a milestone moment for the bank as the agreement removes the last major legacy issue hanging over the Natwest owner. Until the fine, it had been impossible to place an accurate valuation on the bank.

It should pave the way for the government to sell down its 70% stake and for a return to dividend payments later this year – the first such pay-out in more than a decade. Shares are now up 9% over the past year.

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