The "king of trainers" is up 8% today after seeing "material growth" in online and overseas sales.
Companies: JD Sports Fashion Plc
The high street retailer's shares have jumped off the back of their interims today.
Sports retailer's revenues jumped 20% to £970m
JD’s P/E ratio appears reasonable relative to those of other UK retailers of young fashion with international ambitions. However, it is almost twice the level of rival Sports Direct’s (SPD). While there are justifications for a healthy premium, it is likely to act as a brake on the valuation, as will the low dividend yield.
Continued strong trading so far in H2 has led JD to upgrade its full year PBT guidance to c£135m, leading us to upgrade our forecasts by 3.8% from £130m (cons £125m). JD’s prospects look favourable given the ongoing trend towards athletic apparel and footwear, suggesting there may yet be further upside risk to forecasts. However, limited disclosure at a time when divisional and geographic complexity is on the increase makes this difficult to be certain of. With the stock trading on a cal’16 P/E of 18x or 10x EV/EBITDA which now equates to a 10-15% premium versus Sports Direct. Hold
AMINO TECHNOLOGIES (AMO LN) Starting to rebuild - Buy | CVS GROUP PLC (CVSG LN) Strategically positive corporate news strengthens growth thesis | IOMART GROUP (IOM LN) Underpinned, with upside from further acquisitions | JD SPORTS FASHION PLC (JD/ LN) Continued strong trading drives 3.8% FY’16 upgrade | SIGMA CAPITAL GROUP PLC (SGM LN) Development of PRS begins ahead of schedule
Companies: AMO CVSG IOM SGM JD/
JD has delivered an excellent first half result, ahead of our forecast – although, it should be noted that in the absence of any performance details having been released in H1, forecast visibility was low. The beat against our estimate stemmed from the core Sports fascias. The combination of operational initiatives and positive end market trends suggests to us that forecast risk could still be to the upside there. Outdoor is still loss making and continues to carry surplus A/W14 stock, but changes there suggest it is on track for a return to profit in FY17. Overall the business is in good shape and investing heavily both in the UK and overseas. Visibility and disclosure on all the moving parts is low, though, which is why we are currently unable to recommend the shares to new buyers. Maintain Hold.
JD has delivered a strong H1 performance, led by the core Sports fascias where we estimate LFL growth to have continued at the rate seen in H2 (i.e. +12%). This is an important achievement signifying strong growth on growth, and confirms that the favourable trend in athletic footwear and apparel is continuing. We have upgraded FY’16 PBT by 13.6% as a result. It is hard to know if this 2-year run rate can be sustained over the seasonal peak, when densities are higher, but if it can then further upgrades appear possible. Using existing valuation methodology sees our target price increase 16% to 835p (8.5x cal’16 EV/EBITDA). We retain a Hold.
Avon Rubber (AVON LN) | Hill & Smith Holdings (HILS LN) | JD Sports Fashion (JD/ LN) | UDG Healthcare (UDG LN)
Companies: AVON HILS UDG JD/
Although Oxford Street capex will be >10% of JD’s £70m FY budget the use of funds is not excessive. With international aspirations JD needed to raise its profile in London to attract attention from brands and future partners. So whilst securing the lease came at a significant cost, the flagship is a key stepping stone for future development. On the £3m fit-out it should generate a direct return - the store could break-even in Jan’16 and over time could make £1-2m EBIT. The site visit serves as a reminder for anyone still confused about the difference between JD and Sports Direct too. After a good run JD now trades on a cal’15 EV/EBITDA of 8.6x. We previously used 8.0x to derive our target price. However, along with most retailers, the stock against which we benchmarked has re-rated. Sports Direct (3mths, +13%) now trades on 10x. Maintaining a 10% discount indicates a 9x target multiple, equivalent to 715p after adjusting for JD’s Y/E cash flattery. We adopt 715p as a new target but note sector multiples look rich in historic terms and after the Budget.
Goals Soccer Centres (GOAL LN) Mixed H1 trading update – we downgrade from Buy to Hold | JD Sports Fashion (JD/ LN) New flagship in Oxford Street well worth the capital investment | NCC Group (NCC LN) Finals show strong performance from core businesses | Spirent Communications (SPT LN) Weak first half but Q2 order intake stronger | Summit Therapeutics (SUMM LN) FDA grants Fast Track designation for SMT 19969
Companies: GOAL NCC SPT SUMM JD/
The FTCs decision to challenge Synergy’s merger with Steris has precipitated a sharp fall in the share price to a level we think looks compelling whether Synergy remains independent or not. If the merger completes, then a quick 20%+ return is possible. If not, then we expect Synergy to be more explicit in its growth ambitions, which in turn should lead to forecast upgrades. We therefore move the stock back onto the Buy list.
JD has traded well in the first 19 weeks of the year, suggesting the growth trends previously reported, including strong consumer demand for sports footwear, have continued. Although comps are difficult for the remainder of the year, and although they flag that JD margins in Europe will be impacted by FX, management says it remains confident in meeting FY market expectations overall. Having enjoyed a strong run over the past year the shares now trade of 16x (>8x EV/EBITDA). As noted in previous research, further re-rating from here will likely require a clearer routemap being provided in Europe and greater disclosure of the increased number of moving parts across the group in general.
Applied Graphene Materials (AGM LN) First patent approval secured | Futura Medical (FUM LN) AGM statement shows continued progress | JD Sports Fashion (JD/ LN) Strong start to the year and confidence in meeting FY expectations | MJ Gleeson (GLE LN) FY15 results to be ahead of expectations following strategic land sale | Redcentric (RCN LN) Clean year showcases organic growth | Ten Alps (TAL LN) Extracting value and putting TAL on a growth path | The Innovation Group (TIG LN) £46m contract win with tier 1 UK insurer | Walker Greenbank (WGB LN) Sales momentum continues to build, suggesting forecast upside risk
Companies: AGM FUM GLE RCN ZIN WGB JD/
Companies: AGM FUM RCN ZIN JD/
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Boohoo has released the now complete Independent Review into its UK supply chain in full this morning. Whilst a number of areas for improvement have been identified, there is no suggestion failings were deliberate or intentional and the chances required involve a relatively easily achieved realignment its of governance systems. We believe the Group remains well-positioned to lead the fashion e-commerce market in the future and can successfully implement an agenda for change in UK garment manufacturing.
Companies: boohoo group Plc
SCE has announced interim results for the six-month period ending June 2020. Considering these results cover a period when much of the world was experiencing a great deal of upheaval due to COVID, in our view they show impressive progress. The big news, or course, has been the recent game-changing contract win from OEM 8 on 14/9/2020. Having significantly upgraded our forecasts and target price then, we make no further changes today.
Companies: Surface Transforms Plc
We initiate on Portmeirion and argue that it is in a better position than the current market valuation suggests. It has delivered a resilient first half and, following a strategy reset under the new CEO, it has much more enhanced capabilities with an improving model and profit outlook. Furthermore, Portmeirion is well funded with no balance sheet concerns. The shares trade on low spot multiples of 10x FY21 P/E with and 5x EV/EBITDA with a 9% FCF yield. A SOTP analysis based on peer/corporate deal metrics shows fair value towards 650p. Patient deep value investors should take a much closer look.
Companies: Portmeirion Group Plc
News has been positive in the past few months. The Group announced a ground-breaking £27.5m contract award with a new OEM customer in mid-September. Trading has been more resilient than we expected at the start of the COVID-19 crisis, demonstrated by solid H1 earnings today. The Balance Sheet is in better shape helped by a recent £2.2m fund raising. Contract awards have been more focused on EVs, demonstrating the performance, weight and environmental benefits of carbon ceramic discs for these vehicles. A challenge for the Group in this next phase is to maintain momentum with contract wins. A second issue is to manage capacity, costs and cash through the ramp-up. Surface Transforms is shifting from R&D to volume production and with better visibility on medium-term revenues, margins and capex we have lifted our valuation to 57p from 45p
Today’s year end trading update from The Character Group (Character) highlights the Company’s resilience and innovation in a challenging international environment with the Group working closely with customers and distributors to maintain trading at satisfactory levels. Indications remain that the second half to August 2020 will produce a profit at least equivalent to H1’s adjusted £2.5m before tax. The Group also has the benefit of a strong balance sheet with significant cash balances and no debt except the usual working capital facilities, much of which remains unused. We are pleased to be able to reintroduce forecasts that were suspended in March due to the uncertainty surrounding the COVID pandemic.
Companies: The Character Group Plc
Today’s statement reveals incredibly robust Q1 trading across the Group’s brands and regions, with a positive outlook and guidance reinstated for the remainder of the financial year and beyond. In addition, the Group has announced the acquisitions of Oasis & Warehouse, bringing two well-recognised and complementary brands onto its platform. We believe the unprecedented disruption resulting from the COVID-19 pandemic has accelerated the channel shift to online where we see BOO as the clear winner, with an established and leading model positioned to consolidate the market.
The interims reflect COVID challenges, which reduced order intake, and the acquisition of SCL. A milestone three-year agreement with a UK-based EV OEM was recently awarded, potentially worth up to £38m, which substantially underwrites further growth prospects. In the short term however, we reduce our FY20 forecasts, although with the EV contract kicking in next year, we see good growth coming through.
Companies: Trackwise Designs Plc
Red Dwarf, the very British sci-fi comedy franchise, ran for 11 seasons – most recently in 2017; and The Promised Land is a feature-length TV movie – out this year. Yes, the programme is an acquired taste. Strangely, too, many episodes are impacted by a virus or three (physiological, not main-frame).
Companies: WJG BKG CSP CRST MCS INL BDEV RDW GLE SPR TW/ PSN VTY GLV CRN ABBY BWY
Walker Greenbank’s FY20 results date has been reset to 30 June (and complies with updated FCA policy guidance). Its latest update provides no new financial information though orders continue to be received despite lockdown conditions. Operational steps already taken appear to be appropriate, retaining sufficient infrastructure to service prevailing sales demand levels while additional actions aimed at preserving business liquidity are referenced, consistent with those seen elsewhere in the quoted sector. Taken together, the company appears to have quickly adjusted its business model to meet current market challenges in FY21.
Companies: Walker Greenbank Plc
Surface Transforms has announced a major contract win with a manufacturer of EVs. Lifetime revenue is estimated to be £27.5m. Our 2021e revenue forecast is lifted by c.80% and 2022e by c.120%. The improved OEM order book brings better visibility and stability to revenues. To fulfil the order, significant investments will be made in headcount, but the Group should now report a net profit in 2021e against our previous forecast for a loss. Additional working capital and capex are also required but the cash position should improve materially in time. The award demonstrates the performance, weight and environmental benefits of carbon ceramic discs when fitted to EVs. More orders from this customer and others should flow. We showed in our recent initiation note, Release the brakes, 19 August 2020, that the market opportunity for carbon ceramic discs is large, irrespective of whether for ICEs, EVs or hybrids. The Group is on-track to becoming a volume supplier to the industry. With increased estimates our valuation is lifted to 45p from 40p.
The most significant of several 2020 contract wins was announced on 14 September, from a new global customer, OEM 8. New order momentum is rising significantly. SCE’s position as one of only two global manufacturers of a new automotive component – carbon ceramic brake discs – is bringing a series of major opportunities. As a consequence of OEM 8, our 2022 sales estimates double. To be winning such orders shows that these exacting clients embrace SCE’s product, its robust supply chain and manufacturing. SCE also provides a £0.4m upgrade on recent sales revenue.
Zytronic’s interims, as expected, confirm a reduction in revenue and profitability consistent with the lower level of order intake towards the end of CY19. Encouragingly, sales and order intake improved considerably in February and March. This momentum has been frustrated by the impact of COVID-19, causing supply and logistical issues as well as an inevitable drop in demand. The Board acknowledges the challenge of providing anything beyond very short term guidance. We have therefore withdrawn our forecasts at this stage and will review the situation as visibility improves. We believe Zytronic is well positioned to emerge strongly as and when demand normalises.
Companies: Zytronic Plc
A number of REITs have the ability to thrive in current market conditions and thereafter. Not only do they hold assets that will remain in strong demand, but they have focus and transparency. The leases and underlying rents are structured in a manner to provide long visibility, growth and security. Hardman & Co defined an investment universe of REITs that we considered provided security and “safer harbours”. We introduced this universe with our report published in March 2019: “Secure income” REITs – Safe Harbour Available. Here, we take forward the investment case and story. We point to six REITs, in particular, where we believe the risk/reward is the most attractive.
Companies: AGY ARBB ARIX BUR CMH CLIG DNL HAYD NSF PCA PIN PXC PHP RE/ RECI SCE SHED VTA
The pandemic concluded a disappointing year for Brand Architekts. However, trading in Q4 was slightly better than management had anticipated/highlighted in April and, at £18.0m, the net cash position has marginally improved since that time too. Online performance, including DTC, was especially strong. Given ongoing potential and richer margins from DTC development, this is encouraging. Crucially, the new and experienced leadership team is in place and, given clarity of direction, the board is confident in the group’s long term prospects. With a market cap of £19m and £18m of net cash, we look forward with anticipation to an update on strategy on 28 Sept (prelims).
Companies: Brand Architekts Group Plc
Tern reported a stable NAV per share of 7.0p at 30 June 2020, compared with 6.9p a year earlier and 7.0p at the end of 2019. Over the six months to 30 June 2020, an exchange gain on the US dollar-based valuation of Device Authority offset expenses incurred during the period and there were no major liquidity events triggering portfolio valuation uplifts. However, in the half-year, the four principal portfolio companies achieved a 62% increase in aggregate turnover versus H1 2019, demonstrating strong progress despite the economic disruption caused by COVID-19. Employee headcount at portfolio companies – another important indicator of growth – increased by 7% in the half-year, reflecting the focus on cost control during the period. Tern held £0.8m in cash at 30 June 2020, boosted by a £1.5m raising in July, providing scope for new investments to be made in the coming months.
Companies: Tern Plc