JD Sports Fashion PLC

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

JD has scheduled its annual general meeting on 7 July 2022.

Investment Rationale – SPECULATIVE BUY at GBX 145.15

• Bright Prospects: JD Sports is a fairly valued FTSE 100 entity with decent fundamentals. It has decent profit guidance and maintained its gross profit margins during interim results, despite supply chain disruptions. Therefore, it is well-positioned to generate incremental value for its shareholders.
• Robust Fundamentals: JD reported a significant growth in revenue and profits during H1 FY22 and ended the interim period with a substantial net cash position. On the back of positive performance in the Black Friday and Christmas period, there was a growth in top-line revenue.
• Technical Indicator: From a technical standpoint, the current stock price is hovering around the lower Bollinger Band, while the 14-day RSI (~43.19) is also in the oversold position.
• Undervalued Multiples: On a forward 12-month basis, key valuation multiples (EV/Sales, EV/EBITDA, Price/Earnings, and Price/Cash Flow) are quite lower than the median of the Consumer Cyclicals industry.

Key Risks

• Statement on Russia and Ukraine: On 4 March 2022, JD ceased all trading in Russia across both its brand websites and wholesale channels. However, this represented less than 0.05% of annual revenues.
• Fine from CMA: On 14 February 2022, the Competition and Markets Authority (CMA) imposed a penalty of £4.3 million on JD, for failure to comply in certain respects with an Interim Order issued regarding the Footasylum acquisition.
• Supply Chain Snags and Rising Costs: Increasing wage inflation and rising operating costs pose a risk to the Company’s profitability margins. Moreover, the shortage of fuel and lorry drivers cause fears around supply disruption.

Trading Update (for the twenty-two-week period to 1 January 2022, as of 17 February 2022)

• Top-line Growth: During the above-mentioned period, JD’s like for like businesses grew 10% ahead of the same period the previous year.
• Profitability: The profit before tax and exceptional items for the year ended 29 January 2022 was expected to be at least £900 million.

Share Price Chart

 (Source: REFINITIV; Analysis done by Kalkine Group)

Valuation Methodology: Price/Earnings Approach (FY23) (Illustrative)

*Peers: boohoo group plc, Pets at Home Group PLC, and Gear4music Holdings PLC.

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

Conclusion

Based on the decent fundamentals, transformation progress, and favorable valuation conducted above, we have given a “SPECULATIVE BUY” recommendation on JD Sports Fashion PLC at the closing market price of GBX 145.15 (as of 7 April 2022), with a lower-double digit upside potential based on 14.26x Price/NTM Earnings (approx.) on FY23E earnings per share (approx.).

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.