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Sports Direct (first half results 14 December)
The controversial firm is unable to stay out of the spotlight, as recent stories regarding workers’ pay, and plans to pay out £11 million to Mike Ashley’s brother attest. A recent trading update points to a rise in earnings that is expected to be in the range of 5%-15% for financial year (FY) 2018.
A significant store upgrade programme is underway, designed to tempt back lost customers. International expansion has not been a great success, but then Sports Direct would hardly be the first British firm to try overseas operations and run into difficulties. Revenue is expected to rise by 4% to £1.7 billion for the first half, while Earnings Before Interest, Taxes, Depreciation and Amortization (EBITDA) is expected to be 9.1% higher at £158.5 million. Like-for-like growth has declined for two successive years, so real confidence will only return when Sports Direct turns this around. At 20 times forward earnings, the shares are expensive relative to a two-year average of 15.3.
The surge in the shares in July and August peaked at 424p, and since then we have seen a steady decline back towards support around 370p. It would need a move above 392p to break the downtrend from the September highs. A close below 367p could see the 328p level come into play.