RE: Buy out - CITI16 May 2025 14:16
In that context, Citi sees JD Sports, currently trading on a 12-month forward price-to-earnings multiple of just 7.3 times, well below its five-year average of 14.9, as a compelling candidate for a leveraged buyout.
The valuation gap, the bank suggests, could draw interest from private equity, particularly given JD's relatively clean balance sheet and cash generation.
The note points out that JD is already 52% owned by Pentland Group, its long-term controlling shareholder, which could help facilitate a transaction.
Citi calculates that if a private equity sponsor targeted a 25% annual return over four years, and assumed an exit at 5.4 times EV/EBITDA, the average of JD's three-year trading multiple and the multiple implied by the Foot Locker deal, the acquisition could be viable even at a 100% premium to JD’s current share price.