Archived article

Please note that tax, investment, pension and ISA rules can change and the information and any views contained in this article may now be inaccurate.

Robust cash flow and keen prices are strengths for retailer
Thursday 15 Dec 2016 Author: James Crux

Negative sentiment towards sportswear giant Sports Direct International (SPD) looks overdone at 282.5p. While the near-term outlook is challenged, Mike Ashley’s charge does have some strengths.

Half year results (8 Dec) were admittedly dire, a 57% slump in pre-tax profit to £71.6m reflecting devaluation of the pound and an increase in depreciation. Unhedged going into the period, Sports Direct further downgraded earnings expectations for the year to 30 April 2017 and warned ‘strategic challenges and currency headwinds’ will weigh on medium term performance.

Yes, poor governance remains an issue, but don’t forget Sports Direct generated £129.5m of underlying free cash in the half and remains the price leader for sporting goods. This could be helpful with an uncertain 2017 ahead for UK shoppers. It also boasts heritage brands including Dunlop, Slazenger and Everlast, has inked new deals with desirable brands Nike and Adidas and still has potential in Europe.

Based on Cantor Fitzgerald Europe’s downgraded full year estimates – £120m pre-tax profit, 17.4p of earnings – the shares aren’t cheap on a PE of 16.2 times. However if Sports Direct can get back on track and return to profitable growth, this could be a very good entry point. (JC)


Risk-tolerant investors should consider buying at a beaten down price.

‹ Previous2016-12-15Next ›