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LONDON (Alliance News) - Cantor Fitzgerald upgrades its full-year pretax profit forecast for JD Sports and raises its earnings per share estimate following the opening of JD's now largest store on London's Oxford Street.
The broker says the new store, which used to be the home of retailer Next's flagship store, and which is directly opposite Sports Direct's flagship store, is "evolutionary rather than revolutionary". At 24,000 square feet, it is now JD's largest shop, with increased space for main sports brands Nike and Adidas and expanded ranges for womenswear.
"The store will be used to woo the premium brands, such as North Face, which has encouragingly been added to the range. Other brands are likely to follow. In addition, it will act as a site to showcase its assortment and merchandising prowess for potential partners outside the UK," Cantor analyst Freddie George says.
Cantor upgrades its pretax profit forecast for the financial year 2016 to GBP109 million from GBP104 million, which it says takes into account GBP1 million of onerous lease charges, and raises its earnings per share estimate by 6% to 42.4 pence.
George says that the upgrade is predominately due to increases in JD's forecasts, particularly in Europe, and says the broker assumes sales growth of 9.0% and a flat gross margin in its full financial year.
Cantor has a Buy recommendation on JD and reinstates its target price of 750p, which it says broadly values the company on a 10% premium to the general retail sector and is a similar rating to Sports Direct which has a target price of 760p. The broker notes that the stock has risen by 35% since its results in April and is now valued at 16.8 times its financial year 2016 earnings.
"The valuation, in our view, however, still does not reflect the true value of the JD concept. The JD format has an enviable track record, growing operating profits by 12% per annum over the last three years, and is clearly differentiated from competitor Sports Direct. It has the support of the leading sports brands Adidas and Nike in sports fashion and has significant potential to be developed overseas, where it now has momentum," George says.
Shares in JD are trading down 1.1% at 698.00p Friday morning, while Sports Direct shares are trading up 2.6% at 724.50p and shares in Next are up 1.1% at 7,433.25p.
By Karolina Kaminska; karolinakaminska@alliancenews.com @KarolinaAllNews
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