JD Sport – writeup

About a week ago, Wexboy solicited suggestions for “favourite share”. Whilst I think that all of my shares are likely to go up (I certainly didn’t buy them to go down), I have weedled through my portfolio to come up with a value share that I think has every chance of going up.

So, here’s my choice: JD.L (JD Sports Fashion). No doubt everyone has heard of JD Sports, but for completeness, I’ll say that JD is an apparel retailer for which Google Finance offers the following (abridged) description: “JD Sports Fashion Plc is engaged in retail and distribution of sport and athletic inspired fashion, footwear, apparel and accessories. It operates in three segments: sport retail, which includes results of sport retail trading companies JD Sports Fashion Plc, John David Sports Fashion (Ireland) Limited, Chausport SA and Duffer of St George Limited; fashion retail, which includes results of fashion retail trading companies Bank Fashion Limited and RD Scott Limited, and distribution businesses, which includes results of distribution companies Topgrade Sportswear Limited, Nicholas Deakins Limited, Canterbury Limited (including global subsidiary companies), Kooga Rugby Limited and Nanny State Limited.”

JD has increased its revenues every year over the last decade. Adjusted EPS hasn’t been quite as good: there were two down years around 2003, which also corresponds to a similar dip in dividends. During the last decade, dividends have increased from 7.8p to 25.3p, a rate of growth of about 14% pa; which is impressive. Adjusted EPS has grown at a rate of about 16.6% pa, and turnover at a rate of about 10% pa. So, JD has exhibited an attractive growth rate over the last decade., with only a few bumps along the way.

JD has a market cap of £332m, net cash of £60m, gearing of -28%, and a z-score of 4.1.

JD acquired bankrupt Blacks Leisure earlier this year, and had acquired some troubled retailers in Europe last year. It does not look like the growth story for JD is yet at an end.

Despite all this, at a share price of 682p, JD trades on a PER of 6.8, way below the sub-sector (apparel retailers) average of 14.9. EV/Sales is 0.3, against the sub-sector of 1.5. JD has never really traded on a premium EV/EBITDA to the sub-sector; and it currently trades on a EV/EBITDA of 2.95 – which is close to the lowest it has ever been over the last decade.

JD’s shares have a wide spread at the moment: http://www.lse.co.uk/ is reporting the spread at 2.97%, which seems very high for a FTSE250 company.

JD is trading below its median PER for the decade of 7.2. It trades on a PBV of 1.54, against a median of 2.1 for the past decade.

Negatives? Well, there’s the macro situation, where there’s increasing input costs and a squeeze on consumer spending. There’s accusations that the directors are overpaid. Then there’s Peter Cowgill, who is non-exec chairman of MUBL.L (MBL Group). MUBL has had more than its fair share of intrigue: Morrisons was a very large customer of MUBL, but then ceased doing business with them. This has left MUBL in a bind. There was also criticism of director remuneration, and some of their dealings prior to the announcement of the loss of Morrisons as a customer. Cowgill does, therefore, have a tarnished reputation.

So what’s the investment case? Well, it’s pretty straightforward, I have no spectacular insights to offer here, it’s simply the case that JD is a perfectly fine company trading at an absurdly low valuation. Its finances are sound, and it looks to still be in a growth phase. It’s trading at valuations not seen since 2008, which was of course a good time to be buying the stock.

JD accounts for about 6% of my equity portfolio (excluding OEICs).

About mcturra2000

Computer programmer living in Scotland.
This entry was posted in Uncategorized. Bookmark the permalink.

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s