A relatively small acquisition with exposure to 9 Central European countries JD is starting to deploy the capital it recently raised, announcing a conditional agreement to acquire 60% of Marketing Investment Group S.A. (MIG) in Central and Eastern Europe. The other 40% is owned by two brothers, Andrzej and Zbigniew Grzaka. Future put and call options will be put in place. Based in Krakow, Poland, MIG operates 410 stores across 9 countries selling a wide range of sports fashion footwear, apparel and accessories from leading global brands primarily under the ‘Sizeer’ and ‘50 Style’ fascias. The stores average 2,000 sq.ft. in size with the bulk (323) of the stores in Poland. The next biggest country by store number is Romania (27), then Lithuania (17), Czech Republic (15) and Slovakia (9). Sizeer is a premium format, of which 28 are franchises, with ‘50 Style’ more discount. The price paid has not been disclosed (the acquisition is too small under Listing Rule 10), suggesting it was relatively small. In the year ended 31 January 2020, MIG generated revenues of approximately £200m with minimal profit. Potential to build profitability. Platform to roll the JD fascia out from The acquisition is small in Group terms, so we leave our forecasts unchanged as it is likely to take a year to positively impact profits. Like Finish Line, there is potential to grow profitability, particularly at the gross margin level (low 40s currently). This should be driven by better buying, lower discounting, broadening out the range (currently limited), growing apparel (c.15%) and improving the operating efficiencies by upgrading systems. Online is c.24% of sales. There is a good warehouse. Over time, we would expect some rationalisation of the portfolio. MIG is a good platform from which to launch the JD fascia in Central Europe, which is likely to focus on the main cities. Reiterate BUY. Risk to forecasts on upside As discussed in our recent note Moving up the order (15/2/21), JD Sports should emerge from the pandemic with a step change in earnings and strong momentum, helped by the number of recent acquisitions/historic investments, which underpin current consensus and suggest upside to forecasts. With more acquisitions set to come as management deploys the cash from its recent £464m equity raise, in our view, JD Sports is well positioned to continue its double-digit growth story for the foreseeable future. This is not reflected in the current valuation (CY22E PE 19.5x). Next news FY21 results – 13 April.