Peel Hunt downgrades Sports Direct after interims
Peel Hunt downgraded its stance on Sports Direct to ‘hold’ from ‘add’ on Thursday and cut the price target to 260p from 450p following the retailer’s interim results.
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Sports Direct posted a 26.8% drop in first-half pre-tax profit to £64.4m, on revenue of £1.79bn, up 4.5% from the same period a year ago. Underlying earnings before interest, tax, depreciation and amortisation excluding House of Fraser were up 15.5% to £180.3m, but including HoF they were down 4.7% to £148.8m.
Sports Direct said that since its acquisition in August, HoF has contributed £70.1m of revenue and a loss before tax of £31.6m.
Peel Hunt said the figures were solid given the circumstances but it has run out of patience with the lack of visibility on strategy.
"Yes it’s all very interesting to hear a deep dive on Flannels, but investors required chapter and verse on the plans for House of Fraser, as opposed to an extremely optimistic pledge for it to break even next year. It’s the same with the core business: yes, the elevation programme is working but what about the non-elevated stores? What’s the plan for them?
"Clearly current trading is very poor, as it is everywhere, and our new forecasts reflect a tough Christmas ahead for both the core stores and HoF (our numbers now reflect the HoF losses, there’s no change to underlying EBITDA expectations)."
The brokerage said the stock’s valuation suggests forecast momentum here, and it is no longer convinced that this exists.
At 1605 GMT, the shares were down 15.2% to 234.09p.