Business Overview
JD Sports Fashion Plc (LON: JD.) is a Bury, United Kingdom-headquartered General Retailer company, which provides casual wear and sportswear using online and offline modes. The company has its operations in 19 territories globally with more than 700 stores.

Update on Corporate Governance Review
On 2^nd January 2020,JD Sports Fashion announced the engagement of review of corporate governance. The review will be done during the Q1 of FY2020, and the finding will be used in the Annual Report preparations, and new remuneration policy will be presented formally to shareholders in coming annual report.

Financial Highlights – H1 Financial Year 2020 (3^rd August 2019, GBP, million)

(Source: Interim Results, Company Website)
 
In the first half of the financial year 2020,  the group’s revenue surged by 47 per cent to £2,721.2 million as against £1,846.3 million reported in the H1FY2019, driven by 12 per cent Like-for-like sales growth in its global Sports Fashion fascias. The company’s gross margin declined by 1.3 per cent to 46.9 per cent in H1 FY2020 from 48.2 per cent in H1 FY2019. The company’s proforma headline profit before tax, including exceptional items (under IAS 17 ‘Leases’) stood at £166.2 million for the period. The company’s adjusted earnings per share were up by 25.1 per cent from 10.05 pence in H1 FY2019 to 12.57 pence in H1 FY2020. The net cash balance at the end of the period stood at £118.1 million, with the additional substantial investments on both acquisitions, including Footasylum, and capital expenditure being funded by the ongoing strong cash generation in the core retail fascias. The company proposed an interim dividend per share of 0.28 pence in H1 FY2020, a surge of 3.7 per cent against the previous year (H1 FY2019: 0.27 pence).

Share Price Performance

Daily Chart as of  January 2^nd, 2020, before the market close (Source: Thomson Reuters)

JD Sports Fashion Plc shares were trading at GBX 831.90 at the time of writing before the market close (at 2:11 PM GMT) on 2^nd January 2020 and were down by 0.66% versus the previous day closing price. Stock's 52 weeks High is GBX 849.80 and Low is GBX 337.60.The company’s stock has given investors 0.36 per cent of a negative return in the last week. The company’s stock has given investors a positive return of 13.21 per cent of in the last 3 months.

Valuation Methodology

*Peers: Next Plc, WH Smith Plc, Boohoo Group Plc and Dunelm Group Plc.

Conclusion
The group is on track to provide headline profit before tax for the full year 2020 at the top end of the market anticipations which is currently in the range of £402-£424 million. The majority of both third party-branded product and the own branded product of the group is sourced outside of the UK, as it operates with a highly integrated stock management infrastructure for its stores across Europe and the increased risk of a disorderly exit could have potentially adverse consequences on supply chains, tariffs and consumer demand. Additionally, as the threat of the potential downturn increases, discretionary spending on the products of the group can decline, which can impact future operations and financials.

Moreover, as consumer preferences change over time, there could be a further shift of revenue from bricks and mortar stores to e-commerce, which although can reduce the costs but also become a threat for the group if they are unable to adapt on time. Currently, the stock is trading near the 52-week high, suggesting that the upside potential might be limited, and the company can face stiff resistance at the current level.

Based on the above rationale, we have given a "Watch" recommendation at the current price of GBX 843.20 (as on 2^nd January 2020, before the market close at 8:05 AM GMT), while we look for any upcoming catalysts.
 
*All forecasted figures and peers have been taken from Thomson Reuters.

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