Next 15 Group plc (LON:NFG): Can ROE Turnaround Outweigh Near-Term Turbulence?

The stock price of Next 15 Group plc (LON:NFG) has been a rollercoaster ride for investors in recent years, reflecting the company's dramatic swings in profitability. While its return on equity (ROE) has rebounded sharply from a historic low of -115.69% in 2022 to 33.92% in 2024, the stock's recent pullback—falling 31% in June 2025—has raised questions about whether the recovery is durable enough to warrant buying now.

ROE: A Story of Survival and Turnaround

Next 15's ROE performance tells a tale of resilience. After bottoming out in 2022 due to operational challenges, the company turned the corner in 2023 and 2024, driven by cost-cutting, strategic divestitures, and a focus on high-margin services like data analytics and AI-driven consulting. The 33.92% ROE in 2024—the highest in a decade—suggests management has succeeded in stabilizing the core business.

The trailing twelve months (TTM) ROE of 22.53% as of June 2025 remains above historical averages, including a 3-year average of 19.02% and a 10-year average of -3.96%. This improvement, however, comes amid heightened volatility in the stock price. While ROE is a critical gauge of profitability, its recent surge must be contextualized against the broader market environment and the company's strategic execution.

Stock Price Turbulence: Catalysts and Concerns

The stock's 15.4% spike in late April 2025—driven by strong quarterly earnings and a buy rating from Berenberg Bank—contrasts sharply with its June collapse. Analysts highlighted two key factors behind the sell-off:

1. Earnings Revisions: On June 27, consensus EPS estimates for 2025 were slashed by 31%, signaling skepticism about the sustainability of 2024's ROE gains. This followed weak first-half results, which showed only modest EPS growth compared to the prior year.
2. Dividend Sustainability: While Next 15 maintains a generous 6.4% dividend yield, its payout ratio (0.16–0.23) suggests dividends are covered by earnings. However, with the stock price falling below the 200-day moving average (GBX 308.65), investors may fear a dividend cut if profitability falters.

The Case for Caution—and Opportunity

The near-term turbulence reflects investors' struggle to reconcile Next 15's strategic strengths with execution risks. On the positive side:
- Strategic Focus: The Next Network, its decentralized ecosystem of consultancies and agencies, positions the company to capitalize on demand for AI-driven insights and data analytics.
- Balance Sheet: Despite a beta of 1.50 (indicating high volatility), the company's net debt has been reduced, and free cash flow improved in 2024.
- Valuation: At a P/E of 3.94, the stock trades at a discount to its historical average, even after the recent decline.

However, risks remain:
- Market Sentiment: The UK media sector, where Next 15 operates, has underperformed the broader market in 2025.
- Operational Hurdles: Scaling AI and data services requires sustained investment, and competition remains fierce.

Investment Implications

For investors, the decision hinges on whether they view the stock's current price as a buying opportunity or a warning sign.

Bullish Argument:
- The ROE turnaround is real, and the dividend yield provides a cushion.
- With a price target cut to GBX 580 from GBX 660 by Berenberg, the stock is now closer to its revised valuation floor.
- The 2025 EPS forecast of GBX 60.48 suggests a P/E multiple expansion could follow if earnings stabilize.

Bearish Argument:
- The stock's beta of 1.50 means it could underperform further if the market sells off.
- The dividend, while attractive, is small in absolute terms and depends on continued ROE stability.

Final Analysis

Next 15 Group's ROE recovery is a compelling sign of operational progress, but the stock's volatility underscores lingering risks. Investors seeking income and long-term growth may find value here, particularly if they believe the Next Network's data-driven strategy can sustain profitability. However, those with shorter horizons or low risk tolerance should proceed cautiously.

Recommendation:
- Hold: For investors already in the stock, consider dollar-cost averaging on dips.
- Buy: If the stock breaks above its 50-day SMA (GBX 277.25), it could signal renewed momentum.
- Avoid: Until earnings visibility improves and the beta-driven volatility subsides.

In sum, Next 15's ROE-driven turnaround offers hope, but the path forward remains fraught with execution risks. Patience—and a long-term view—may be the best tools for navigating this stock's turbulence.