This information has been prepared by IG, a trading name of IG Markets Limited. In addition to the disclaimer below, the material on this page does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. IG accepts no responsibility for any use that may be made of these comments and for any consequences that result. No representation or warranty is given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk. Any research provided does not have regard to the specific investment objectives, financial situation and needs of any specific person who may receive it. It has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such is considered to be a marketing communication. Although we are not specifically constrained from dealing ahead of our recommendations we do not seek to take advantage of them before they are provided to our clients. See full non-independent research disclaimer and quarterly summary.
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.