JD Sports seeks to broaden its appeal and Bovis Homes has another go at buying part of Galliford Try

Tuesday, September 10, 2019 - 10:15

“Markets were mixed on Tuesday with Chinese shares slipping on the back of weak producer price data. The FTSE 100 dropped 0.4% to 7,209 as investors lost their appetite for the pharma, tobacco and utilities sectors.

“On the currency markets, the pound eased back against the dollar, falling 0.16% to $1.236,” says Russ Mould, Investment Director at AJ Bell.

JD Sports Fashion

JD Sports is proof that the best-run retail businesses still have a chance of making big money in a difficult market.

“It appears that JD’s latest sales boost has been helped by getting more interested customers to open their wallets and actually buy items rather than simply browse, as per the reference to having ‘improved conversion’.

“Now that it has made a massive success of the UK market, JD’s story is now one of international roll-out. Europe is already off to the races with the company deciding to increase the physical size of new stores, showing confidence that consumers like its offering.

“Asia Pacific’s growth is being held back by property availability but operations in the US are slowly expanding.

“While JD calls itself the ‘undisputed king of trainers’, clothing is increasingly important to the overall proposition, selling t-shirts, hoodies, tracksuits and more.

“The acquisition of boutique men’s clothing brand Pretty Green and a majority stake in designer clothing seller Giulio Fashion earlier this year would suggest it is prepared to go beyond the standard sports-related leisurewear.

“It could use these brands to help expand the appeal of its stores to a wider audience. This product diversification theme is also a continuation of the 2016 acquisition of camping-to-cycling retailer Go Outdoors which has given JD a strong position in the fast-growing outdoor clothing market.”

Galliford Try / Bovis Homes

“Plans for a £1bn merger of Bovis Homes with Galliford Try’s housebuilding division look logical on several levels, even if both parties are some way off a final agreement.

“Arguably the individual businesses lack scale and by combining they might be better placed to compete with industry heavyweights like Barratt Developments and Persimmon.

“And just concentrating on the housebuilding and regeneration divisions, rather than absorbing the whole of Galliford Try, makes this an easier to swallow meal, albeit a reheated one after a previous proposal was rebuffed by Galliford back in May.

“That approach reportedly foundered on financial concerns, with Galliford fearing that it would be left as a cash-strapped construction firm – not a good place to be as stakeholders in the likes of Carillion and Kier could attest.

“It is probably telling that the terms of the freshly proposed transaction include a cash element. Today’s news is very much a case of a predator becoming prey after Galliford made its own play for Bovis when it was in the middle of a testing period back in 2017.

“The turning of the tables is testament to the repair job Bovis boss Greg Fitzgerald has done in the interim.”

These articles are for information purposes only and are not a personal recommendation or advice.

The daily market update is written by Russ Mould, AJ Bell’s Investment Director and his team. The article highlights the movement in the main index, winners and losers on the day and any macro-economic announcements.