Next out of favour as FTSE slips from high Next was out of favour on Friday as the FTSE 100 drifted further from its 12-year high. Morgan Stanley turned cautious on Next, sending the stock 2.4 per cent lower at £45.80. The retailer's superior and stable management meant the stock has outperformed the UK sector by nearly 500 per cent cent since 2003, it said. "Next has had a fantastic decade, but one founded on great execution and margin expansion, not structural competitive advantage," Morgan Stanley told clients. We do not think it plausible to assume that one retailer can be expected to make better management decisions than its peers indefinitely. Management's success has been in lifting margins rather than sales, where growth has been "mediocre at best," the broker said. It highlighted that Next brand operating margin was more than double that of its peers, having risen from 13.6 per cent to 18.7 per cent over the past 10 years. "H&M's recent history shows that margins cannot continue to increase indefinitely," said Morgan Stanley. It noted that, in the decade to 2010, H&M's shares soared as it improved profitability, then dropped back as margins began to normalise. While there was no immediate danger to trading, the market is now valuing Next peak earnings on peak multiples, Morgan Stanley said. It reckoned that, based on cash flow, more than half of Next's current market value lay beyond 2023. The wider market slid for a second day, with the FTSE 100 down 0.6 per cent, or 42.45 points, at 6,654.34. The index broke a four-week winning streak, losing 1 per cent since Monday. Shire , the subject of persistent takeover rumours, added 1.6 per cent to £21.68. "In a fast consolidating sector, we think Shire could become increasingly regarded as a potential target," said Société Générale. Few companies in the pharma sector globally with a revenue and earnings growth profile akin to Shire's trade at a discount to peers. This leads to our rationale that a hypothetical bid at circa £31 could be justifiable for large-cap pharma companies. Shire has jumped 16 per cent in just over two weeks, rallying from a six-month low, on talk that its corporate advisers were strengthening takeover defences in case a US peer made a hostile approach. Bristol-Myers Squibb was said to have sounded out banks earlier this year on options to finance a possible Shire bid. Severn Trent rose 1.4 per cent to £20.71 as shareholders lobbied for a takeover price above £23 a share. Engineer Smiths Group rallied 1.5 per cent to £13.55 after a trading update, which showed demand for John Crane mechanical seals offsetting delayed government orders for detection equipment. Halfords lost 10 per cent to 300p as broker downgrades followed its surprise dividend cut on Thursday, which was to fund a more extensive store refit plan than expected. "We don't expect a dividend increase before 2016 even if execution is as planned, which may challenge the patience of some income investors," said Barclays. [It] will take time and positive results before management can persuade investors that Halfords is now a growth company. Ocado slipped 4.7 per cent to 263.5p on fears of a total breakdown in relations between its management and Waitrose, its main supplier. Ocado chief executive Tim Steiner was quoted as calling Waitrose's reaction to its distribution deal with Wm Morrison "a joke," adding: "sometimes the parent doesn't like it when the child grows up." Inmarsat lost 3.4 per cent to 649.5p on a downgrade from Exane BNP Paribas, which forecast that supply of satellite data connections would outstrip demand. Bandwidth available for telecoms was set to triple by 2016 and new entrants to the market would have no incentive to protect prices, Exane said. While Inmarsat would not compete directly, the deflationary market would still drag on its pricing, it argued. Close Brothers slid 7.7 per cent to £10.06 after reporting a difficult quarter for its Winterflood market-making business, which suffered because equity volumes were biased towards the large caps where it earns a lower margin.