Why I reckon this FTSE 100 share would be a good addition to my ISA

The market likes today’s trading statement from FTSE 100 retailer Next (LSE: NXT) and the shares are up almost 9%, as I write.

The company deals in clothing, footwear and home products, which it sells from traditional stores and via the internet. And that hybrid approach has helped the business survive through the pandemic. In fact, Next has a recent history of outperforming its directors’ expectations. And that trend continues with today’s update.

In the nine-week period to 26 December, full-price sales were down just over 1% compared to the equivalent period last year. But in October, the directors had predicted a fall of about 8%. The company saw some strong trading in November and December. And profit before tax for the full year to 25 January should come in around £342m.

Next has been a strong-performing FTSE 100 share in 2020

Considering the challenges of the pandemic, I think that’s a decent outcome. And the good trading has also helped the firm to reduce its net debt for the year by £487m to a forecast £625m. The Next business is in pretty good health. And even after factoring in Boris Johnson’s latest lockdown announcement, the directors expect an even better performance in the year ahead.

The firm thinks the coming year’s profit before tax will be in the range £600m to £735m. And that compares to a figure of just over £728m earned in the full-year to January 2020 – before the pandemic struck.

So, it seems that Next is set to return to full speed soon. And I reckon that outcome is factored into the share price. At today’s 7,497p or so, it’s a little above its level just before the pandemic hit the stock market. And the forward-looking earnings multiple for the trading year to January 2022 is around 18.

I reckon Next has managed the Covid-19 crisis well. From the spring lows below 3,400p, the shares have put in a steady recovery during 2020 to reflect the firm’s performance. And the Brexit process hasn’t caused much trouble either. The company reckons it hasn’t experienced any disruption because of Brexit. And all the new systems needed are up and running. 

The directors don’t think the UK’s departure from the EU will much affect Next’s ability to import and export stock in the year ahead. And they don’t anticipate any increase in customs duty costs following the government’s announcement of the free trade agreement between the UK and EU.

I’d buy for the long term

Looking back to the spring, Next was a bargain stock – one of those cheap shares that we all read so much about. But with the uncertainties of Covid-19 and Brexit at the time, it probably wasn’t an easy buy for many investors. However, the murky outlook is what made the share price depressed. And it’s why super-successful investors such as Warren Buffett go shopping for shares when the general economic storm clouds are in the sky. 

But even now I reckon the Next business has a bright future and I’d buy some of the shares for my ISA with a long-term holding period in mind.