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JD Sports surprises by taking 8.3% stake in Footasylum
JD Sports Fashion (JD.) 467.3p
Gain to date: 3.5%
Original entry point: Buy at 451.3p, 12 July 2018
The market liked the news that JD Sports Fashion (JD.) had taken an 8.3% stake in struggling retailer Footasylum (FOOT:AIM) ‘for investment purposes’. The FTSE 250 business says it is prepared to buy up to 29.9% of the company but it won’t make a full takeover offer.
Footasylum was established in 2005 by David Makin, one of the two co-founders of JD Sports in the early 1980s. Makin was later joined by the other co-founder, John Wardle, in 2008.
‘Talking to management at JD Sports they believe that the Footasylum business is currently undervalued but that the customer proposition remains sound, despite a difficult 2018,’ says Shore Capital analyst Greg Lawless.
‘In our view, the strategic stake acquired by JD Sports is about future positioning.’
SHARES SAYS: Given Footasylum’s patchy track record since floating, one has to wonder if JD Sports is taking too high a risk in spending money on this investment.
We don’t want to see it become another Sports Direct (SPD) and buy up stakes in various troubled retailers. Instead, we would rather see it focus on the day job.
We retain our ‘buy’ rating on the stock but will be following the Footasylum situation very closely.