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.
