JD Sports Fashion Plc

JD Sports Fashion PLC (JD) is a General Retailers company providing branded casual wear and sportswear using online and offline modes. The company has its operations in 19 territories globally with more than 700 stores.

JD Sports Fashion will announce its 52-weeks results on 1^st February 2020.

Recent News
On 1^st October 2019,  JD Sports Fashion Plc announced, following the CMA's Phase 1 decision, the group has prudently considered the CMA's analysis and their claim that the takeover of Footasylum would give rise to a substantial lessening of competition.

Financial Highlights - H1 Financial Year 2020 (3^rd August 2019, £, million)

(Source: Interim Report, 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 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 PBT (Profit before tax) including exceptional items surged by 30.1 per cent from £121.9 million in H1 FY2019 to £158.6 million in H1 FY2020. The company’s PBT (Profit before tax) surged by 6.6 per cent from £121.9 million in H1 FY2019 to £129.9 million in H1 FY2020. The company’s adjusted earnings per share were up by 25.1 per cent from 10.05 pence in H1 FY2019to 12.57 pence in H1 FY2020. The company’s basic earnings per share declined from 10.05 pence in H1 FY2019to 9.67 pence in H1 FY2020.

Share Price Performance

Daily Chart as at 20^th November 2019, before the market closed (Source: Thomson Reuters)

On November 20^th, 2019, JD Sports Fashion Plc shares were trading at GBX 748.20 at the time of writing before the market close (at 1:44 PM GMT), down by 1.55 per cent against the last day closing price. Stock's 52 weeks High and Low are GBX 795.40/GBX 318.50.

Valuation Methodology

*Peers: Boohoo Group Plc, Greggs Plc, WH Smith Plc and Naked Wines Plc.

Conclusion
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 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 decrease costs but also become a threat for the group if it is not in a place to adapt. After the critical Christmas trading period, the company will provide an update on trading in early January, which would give better clarity about the impact of Brexit and macroeconomy on demand for products.

Based on the above rationale, we have given a "Watch" recommendation at the current price of GBX 763.20 (as on 20 November 2019, before the market close at 8:35 AM GMT), while we look for any upcoming catalysts.
 

Fevertree Drinks Plc

Fevertree Drinks Plc (FEVR) is a London- Headquartered beverages company. Its geographical areas of operations were divided into segments like the United Kingdom, Europe, United States of America and Rest of the World.

Trading Update
On 20th November 2019, Fevertree Drinks Plc announced its trading update. The company witnessed growth in all four regions in which the company operates for the period, with acceleration in Europe and the US-based markets in the second half of the financial year. Despite an increase in the comparators in FY 2018, the company’s UK based On-Trade business has been performing well. Due to slowdown in consumer retail spending, the performance of UK based Off-Trade business remained on the lower side. The company achieved a market leadership position in the UK based Off-Trade business, with a value share of 38 per cent. The RoW (Rest of world) performance remained satisfactory for the period.

Financial Highlights – H1 Financial Year 2019 (30th June 2019, £, million)

(Source: Interim Report, Company Website)
 
In the first half of the financial year 2019, led by decent growth reported by the group across all of their four operating segments and remarkably in the United States where the group has secured substantial distribution gain and operational progress, the  group's revenue during the period surged by 13 per cent on a reported basis and 12% by constant currency basis to £117.3 million against the £104.2 million in H1 FY2018. Adjusted EBITDA surged by 800bps on a reported basis and 700bps on a constant currency basis and stood at £36.7 million. However, the adjusted EBITDA margin declined slightly to 31.3 per cent in H1 FY19. This led to a 7 per cent increase (reported basis) in the diluted EPS and stood at 24.3 pence.
 
Share Price Performance

Daily Chart as at 20^th November 2019, before the market closed (Source: Thomson Reuters)

On November 20^th, 2019, Fevertree Drinks Plc shares were trading at GBX 2,047.92 at the time of writing before the market close (at 1:49 PM GMT), up by 10.19 per cent against the last day closing price. Stock's 52 weeks High and Low are GBX 3,290.00/GBX 1,697.02.

Valuation Methodology

*Peers: Stock Spirits Group Plc, Nichols Plc, Hilton Food Group Plc, Britvic Plc and Greencore Group Plc.

Conclusion
The unfavourable weather condition in the UK impacted the group in the H1 FY2019, and UK sugar tax has also impacted its group's margin. However, these impacts were already discounted by the management and the reported performance was in line with the expectations.

In the recent interim report, the group reported decent growth in all the four operating geographies and the group had secured a no.1 position as a mixer in the UK in both off-trade and on-trade basis. The group witnessed strong growth in the United States during the H1FY19 and revenue surged by 31% to £19.8m and 24% growth on a constant currency basis, supported by several operational changes made by the company post taking direct control in June 2018.

The group also has strong fundamental metrics as it has maintained an EBITDA margin above 25% since last many years and even net margin of the company reported in the past couple of years was substantially above the industry median. Also, the return on equity (ROE) recorded by the group in the past several years was considerably above its peer’s average.

Over the course of 4 years (FY14 - FY18), the company’s revenue surged from GBP 34.7 million in FY14 to GBP 237.4 million in FY18. Compounded annual growth rate (CAGR) stood at 61.73 per cent.

Therefore, based on the above rationale and valuation done using the above methodology, we have given a "Speculative Buy" recommendation at the current price of GBX 1,843.68 (as on 20th November 2019, before the market close at 8:20 AM GMT), with single-digit upside potential based on 35.00x NTM Price/Earnings (approx.) on FY19E earnings per share (approx.).

*All forecasted figures and Peer information have been taken from Thomson Reuters.

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