JD Sports Fashion PLC

JD Sports Fashion PLC (LON: JD.) is an FTSE 100-listed retailer of sports, fashion, and outdoor brands.

As updated on 7 June 2022, the Group intends to release its FY22 results shortly.

Investment Rationale for Valuation – Speculative Buy at GBX 118.73

• Trading Update: On 12 May 2022, the company provided an update on its performance in the first 14 weeks of the new financial year covering the period to 7 May 2022. It has stated that total sales in the Group’s like for like businesses to be more than 5% higher during the period, compared to the prior corresponding period.
• Decent Interim Performance: The Group delivered revenues of £3,885.8 million in H1FY22, compared to £2,544.9 million reported in H1FY21. Gross profit grew to 48.5% during the period, from 45.6% in the prior corresponding period.
• Acquisitions: The Group acquired DTLR and Marketing investment Group in Poland during H1FY22. These transactions give the company exposure to important markets in the US and Eastern Europe.
• Technical Indicator: The price of the stock is hovering between the lower and middle Bollinger band, with a 14-day RSI level of ~41.35.

Key Risks

• Regulatory Risk: The company is prone to regulatory measures owing to non-compliance and breach of competition law.   
• Macro Risk: UK's economy shrank by 0.1% in March 2022, thereby raising further concerns of a slowdown in growth in the near term.  

Recent News

• On 7 June 2022, the Group has notified of a press release issued by the Competition and Markets Authority with regards to its ongoing investigation into the suspected breaches of competition law by the company. The Group will review the draft notice and intends to recognise a provision of approximately £2 million in its financial statements for the 52 weeks to 29 January 2022.
• On 25 May 2022, the company updated that with regards to the ongoing review of its internal governance and controls, it has decided to fast track the separation of the roles of Chair and Chief Executive Officer.

Financial Highlights (for the twenty-six weeks to 31 July 2021, as of 14 September 2021)

(Source: Company Website)

• Rise in PBT: Profit before tax increased to £364.6 million in H1FY22, from £41.5 million in H1FY21.     
• Cash Position: The Group ended the period with a net cash position of £995.1 million as of 31 July 2021, compared to £764.9 million as of 1 August 2020.

One Year Share Price Chart

(Source: REFINITIV; Analysis done by Kalkine Group)

Valuation Methodology: Price/Earnings Approach (FY23E)

*Peers: Few peers considered are Gear4music Holdings PLC, Dunelm Group PLC and Associated British Foods PLC.  

*All selected peers are LSE-listed Companies from the Consumer sector.  

Conclusion

The management expects the headline profit before tax and exceptional items for the year-end 28 January 2023 will at least be equal to that for the year ended 29 January 2022 and is anticipated to be approximately £940 million.

Based on the decent interim performance, rise in net cash position and support from the valuation as done using the above method, we have given a “Speculative Buy” recommendation on JD Sports Fashion PLC at the current market price of GBX 118.73 (as on 08 June 2022, at 11:50 AM GMT+1) with lower double-digit upside potential based on 11.30x Price/NTM Earnings (approx.) on FY23E earnings per share (approx.).

Please note markets are trading in a highly volatile zone currently due to certain macro-economic and geopolitical tensions prevailing. Therefore, it is prudent to follow a cautious approach while investing.

Note 1: The reference data in this report has been partly sourced from REFINITIV.

Note 2: Investment decision should be made depending on the investors’ appetite on upside potential, risks, holding duration, and any previous holdings. Investors can consider exiting from the stock if the Target Price mentioned as per the Valuation has been achieved and subject to the factors discussed above.

Note 3: Dividend Yield may vary as per the stock price movement.

Note 4: Target Price refers to a price level which the stock is expected to reach as per the relative valuation method and or technical analysis taking into consideration both short-term and long-term scenarios.

Note 5: ‘Kalkine reports are prepared based on the stock prices captured either from the London Stock Exchange (LSE) and or REFINITIV. Typically, both sources (LSE and or REFINITIV) may reflect stock prices with a delay which could be a lag of 15-20 minutes. There can be no assurance that future results or events will be consistent with the information provided in the report. The information is subject to change without any prior notice.’

Technical Indicators Defined: -

Support: A level where-in the stock prices tend to find support if they are falling, and downtrend may take a pause backed by demand or buying interest.

Resistance: A level where-in the stock prices tend to find resistance when they are rising, and uptrend may take a pause due to profit booking or selling interest.

Stop-loss: It is a level to protect further losses in case of unfavorable movement in the stock prices.

Disclaimer

References to ‘Kalkine’, ‘we’, ‘our’ and ‘us’ refer to Kalkine Limited.

This website is a service of Kalkine Limited. Kalkine Limited is a private limited company, incorporated in England and Wales with registration number 07903332. Kalkine Limited is authorised and regulated by the Financial Conduct Authority under reference number 579414.

The article has been prepared for informational purposes only and is not intended to be used as a complete source of information on any particular company. No advice or information, whether oral or written, obtained by you from Kalkine or through or from the service shall create any warranty not expressly stated. Kalkine does not intend to exclude any liability which it is not permitted to exclude under applicable law or regulation.

Kalkine does not offer financial advice based upon your personal financial situation or goals, and we shall NOT be held liable for any investment or trading losses you may incur by using the opinions expressed in our publications, market updates, news alerts and corporate profiles. Kalkine does not intend to exclude any liability which it is not permitted to exclude under applicable law or regulation. Kalkine’s non-personalised advice does not in any way endorse or recommend individuals, investment products or services for your personal financial situation. You should discuss your portfolios and the risk tolerance level appropriate for your personal financial situation, with a professional authorised financial planner and adviser. You should be aware that the value of any investment and the income from it can go down as well as up and you may not get back the amount invested.

Kalkine Media Limited, an affiliate of Kalkine Limited, may have received, or be entitled to receive, financial consideration in connection with providing information about certain entity(s) covered on its website.