Next sinks after broker voices turnround doubts

Next was Monday’s sharpest blue-chip faller after Exane BNP Paribas said turnround hopes for the UK retailer look unfounded.

While investors understand the risks around current trading, Next’s valuation reflects a longer term stabilisation “that we don’t perceive as likely or indeed possible”, Exane said.

Market fragmentation means mature high street retailers are at risk of terminal decline, so interest “is likely to be confined to value and cash focused investors,” Exane said. “Should the market move to anticipating structural declines it doesn’t take heroic assumptions to see downside in excess of 30 per cent.”

Next closed 3.6 per cent lower at £41.66 after Exane set a £37 target.

The second quarter began with a pullback for the wider market, with the FTSE 100 losing 0.6 per cent, or 40.23 points, to 7,282.69.

ITV lost 2.6 per cent to 213.3p, having been buoyed on Friday by a disclosure that Goldman Sachs had a combined stake of more than 1bn shares, or 25 per cent of the voting rights.

Some traders had interpreted the news as a signal that Liberty Global, ITV’s 9.9 per cent shareholder, had been adding to its stake. But Liberty said two days earlier that it had loaned out nearly 400m of its ITV shares as part of a hedging transaction. Goldman, acting as counterparty, would have to disclose an increase in its ITV holding even though Liberty’s underlying position had not changed, according to dealers.

WS Atkins jumped 26.6 per cent to £19.50 after the engineering services group confirmed bid rumours by saying it had received a £20.80-per-share offer from SNC-Lavalin of Canada.

Analysts saw US peers Fluor and Jacobs Engineering as potential counterbidders for Atkins, though there were doubts about whether either would be prepared to beat SNC’s offer of nearly 12 times operating profit.

“Atkins’ market leadership position in the UK and strong positions in the Middle East and nuclear are likely to be of interest to other bidders. But we have long thought its large defined benefit pension scheme liability (gross liability of £1.8bn) would likely inhibit would-be acquirers,” said Citi. “For this reason, our central base case is that, should remaining terms and conditions be agreed between the two boards, this deal is likely to be successful.”

Speculative demand saw AstraZeneca rally off a session low of £48.86 to close little changed at £49.08. The drugmaker has pivotal trial results of a cancer treatment due in mid-2017.

Allied Minds dropped 11.3 per cent to 270.4p ahead of the intellectual property investor’s full-year results due in late April. Jefferies last week advised selling Allied Minds in anticipation that Jill Smith, its new chief executive, will refocus its portfolio by writing off or slating for disposal the “strugglers”.