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10 Jan 2020
JD Sports Fashion : Upgrade driven by strong International momentum - Buy
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JD Sports Fashion : Upgrade driven by strong International momentum - Buy
JD Sports Fashion Plc (JD:LON) | 117 -4.2 (-3.0%) | Mkt Cap: 6,062m
- Published:
10 Jan 2020 -
Author:
Ben Hunt, CFA | Kate Calvert -
Pages:
7
A well-executed Christmas given the challenging UK High Street conditions widely reported by its peers. Management reports positive LFL sales trend in the Group’s global Sports Fashion business. This is driven by good performance in some Asian markets, Europe and the US rather than the UK. In terms of colour, management said the US has seen a slight acceleration in 2H LFL from +5% reported in H1, with the FY US gross margin on track to be up 100 bps as guided. Europe has slowed from the +21% reported in 1H20, though is still motoring at double digits. Sportzone moved into a small profit in 2H versus guidance for a small loss. Asia is small in Group terms, but Australia and Malaysia are trading well with South Korea still challenging.
A solid UK performance in the context of a challenging UK High Street. In keeping with industry data/peers’ comments, JD saw lower footfall, though conversion was better. In-store LFLs were still positive, but a slowdown on 1H20 in-store LFL +c.7% was inevitable. 2H20 comps were also tough with fewer Adidas Yeezy launches yoy.
We raise FY20e/FY21e PBT post IFRS 16 by 4.3%/3.8% driven by International. Management is confident it will achieve FY20 underlying PBT post IFRS 16 in the upper quartile of current market expectations (£403m-£433m).
Further upside potential to FY20 forecasts. Management highlights that timing differences yoy in post-Christmas sales in a number of its European markets (e.g. the French sale period started 2 days ago) means trading in the last few weeks could yet impact FY profits given Europe’s strong momentum.
Valuation does not reflect strong cashflow & International opportunities with the potential to deliver double-digit Group growth for the foreseeable future. Our TP, now based on a 25% premium to the CY20e PE of European growth peers to reflect superior long-term International growth potential, increases to 940p (from 750p).