28th May 2015 11:03
LONDON (Alliance News) - Liberum is positive on Sports Direct International, after the sporting goods retailer said underlying earnings before interest, taxation, depreciation and amortisation will be in line with market expectations for the financial year to April 26, while both underlying pretax profit and earnings per share are set to be ahead.
Sports Direct said its underlying Ebitda for the recent year will be GBP380 million, in line with market expectations, but said its underlying pretax profit and earnings per share will be ahead of the market view, without providing any specific figures.
Liberum analyst Tom Gadsby sets three key strengths that support the broker's Buy recommendation, with a price target of 900 pence. Firstly, he likes the fact that the company has control over the levers that control growth: margins, inventory and route to market, saying the company is strong both in store and online.
Secondly, the analyst highlights Sports Direct's scope for expansion. "Unlike Ted Baker where the growth is organic, Sports Direct is looking to grow through acquisition, so our target valuation reflects a higher risk profile, but given the shape of European Sports retailing there is plenty of scope to expand."
And thirdly, Gadsby is impressed by the company's growth trajectory. "We forecast 13% compound earnings growth for the next three years, and that is without any upside from acquisitions".
Liberum is a market maker in Sports Direct International.
Meanwhile, Cantor Fitzgerald keeps its Hold rating and a price target of 760p. Cantor analyst Freddie George says the broker is maintaining its financial 2015 pretax profit forecast of GBP285 million, and its pretax profit estimates for 2016 of GBP326 million, which will include the World Rugby Championship.
The company reported in financial 2014 a pretax profit of GBP249.3 million.
George says the company has significant free cashflow with FY15 capital expenditure forecast at GBP90 million, but does not appear to have a clear strategy to reinvest these resources.
"The focus, in our view, should be on strategic acquisitions rather than on opportunistic investments, developing more broadly the business overseas and growing on-line sales," says Cantor's analyst.
Sports Direct International is up 4.4% at 687.17p, the best performer in the FTSE 100 Thursday morning, while Ted Baker shares are up 2.5% at 2,927.00p.
By Daniel Ruiz; [email protected]
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