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This is everything that’s wrong with the UK market.
Dicks sporting goods released some decent results yesterday. EPS was $12.18 for 2024 with a guidance of $12.85 for 2025.
The share price rose 15% to $216 per share, which is 16.8 x forward earnings.
In contrast, JD has a consensus estimate of £11.71p per share for this year and £12.85p for next year.
Assuming next years EPS is in the right ballpark (we’ll find out in a couple of weeks) JD trades on a forward PE of 8.7 (even less if you do it on an EV basis).
A comparable share price for JD based on the same earnings multiple of Dicks, would be 215p.
Now I know there’s difference between the company’s (products, geographical locations etc) but it does highlight the pathetic valuations some companies have on the UK market.
Assuming earnings are correct and with North America likely to be the companies biggest market (by turnover) the company really needs to start thinking about moving its listing.
In my view, the share price is unlikely to have any great movement before the March update.
We have to remember, this is the first time the company has failed to grow PBT (before adjusted items) for many years. Fiscal 2024 PBT will be lower than fiscal 2022, despite revenue increasing substantially.
Revenue will likely grow again in fiscal 2025 due to the latest acquisitions and growth strategy, but the real question is, can they get back to increasing profits given the current headwinds?!
The March update will give us a first look at this. I expect the company to be cautious given the debacle of the profit warning, but hopefully it isn’t expectations of another fall. A PBT range, with the lower end being the same as fiscal 2024 would give the share price a solid foundation to build on.
Jonny,
Look at the share price action in the run up to year end. The market did get prematurely bullish on consumer driven stocks, but that shows just how quickly the stock can move.
My own view, based on interest rates dropping more than people expect this year, is that the consumer will strengthen as we go through the year and JD will do well.
I have the current PE ratio at around 9, which is too low ASSUMING that profits do not fall again in fiscal year 2025. The initial guidance for 2025 will be key here (sometime in March) and will hugely influence the short term share price direction. The risk here is that the company low balls the guidance to avoid a repeat of the profit warning (under promise over deliver), which certainly won’t help the share price.
Some on here think the growth is over. But with the recent acquisitions and plans to open 200 new stores a year, I don’t think that is likely. If the growth was over, and profits were to remain at around fiscal 2024 levels, then I still think the company is undervalued. The FTSE underperformance is well known and although the company has no plans for a US listing currently (I’ve spoken to IR about this) pressure from investors will increase given the underperformance to US peers.
Of course there are plenty of headwinds, the min wage increase in the UK, trade route issues etc etc, so JD it isn’t without risk and it again could be a difficult year.
Just my views, no investment advice given or intended.
Personally, I don't worry about what others are doing. You don't know their strategy or time horizon. I guess Voleon Capital are betting that 2025 guidance will be horrible. Possible of course, but given a full year contribution for the recent acquisitions it isn't something I subscribe to.
Maybe it's too early to be buying consumer driven stocks, but again I'd take the opposite view with this being a big election year both here and across the pond. Once inflation drops, the pressure to reduce rates and get people spending again will be huge.
The company trades on current PE of around 10 (2024 guidance), so even assuming EPS remained similar in fiscal year 2025, the company wouldn't be overvalued. Personally, I think a PE of 10 is pitiful anyway, but that's the FTSE100 for you these days. If the company was traded on a PE of 15, would it be overvalued?!
Now if EPS were to fall in fiscal year 2025, then I guess it depends on how much the fall was to understand the impact on the share price. 2025 guidance will be key and the next driver of share price direction.
Personally, I believe the company will grow EPS in 2025 and that the consumer will be become a hell of a lot stronger as we progress through the year. When inflation drops to 2% in April (energy price driven) they'll be a huge amount of pressure to reduce rates significantly, regardless of what is currently being said.
Again only my views, but I'm expecting a new all time high within the next 24 months.
- Global interest rates starting to turn
- Cost of living crisis starting to abate
- Revenue growth still strong (despite what some posters would have you believe)
- Net cash on the balance sheet
PBT for this year is disappointing, but those stating that there’s no basis for new investors will likely look very silly in the fullness of time.
Sekforde, you’re missing that the Wintershall FCF from June 2023 to Q4-2024 will be used to pay the $2bln cash payment. It might not cover all of it (hence the bridge facility) but debt will close to $5bln on completion, with the ability to reduce that by $1bln year, whilst also paying divi’s and buying back shares.
It’s a monster of a deal.
You’re looking at this all wrong Sekforde. Investors don’t overly worry about Shell’s debt or BP’s. Nor will they overly worry about Harbour’s.
Why? Because they can constantly repeat earnings and FCF. Why? Because they have the size and scale to be able to do so.
Who knows what the market will value the company at, but to say it’s a bad deal is a million miles from the mark.
I think you’re correct on FCF, Sekforde. The combined group is more likely to produce around $1.5bln of FCF. Which after the divi, would leave around $1bln a year for buybacks/debt reduction.
It is, however, still an incredible deal. FCF will be after around $2bln a year in CAPEX, that will constantly allow Harbour to convert 2C to 2P, or simple stake stakes in new developments. Earnings will be constantly repeating, which should allow for a much better valuation metric.
Not to mention the forced buying that will occur due to the company being catapulted back into the FTSE100.
The best CEO in the industry by a clear mile.
Garydav,
I think they have to be. If not, there’s another couple of years praying oil prices don’t drop too much and that the company can keep decline rates in-check.
One thing that’s obvious is that the government of the day, or the government in waiting, isn’t going to ride to the rescue by removing the ridiculously designed EPL.
In my view, the company is too small and the debt is too high to operate successfully in the current environment. They need the firepower of merging with a rival to maximise the use of company’s assets, whether that be the tax losses, CCS or alternative energies.
From a buyers perspective, Harbour are a great example, they could burn through the tax losses in no time, whilst also vastly reducing the interest rate on the debt . 20p a share would seem a fair price to me from a buyer and seller perspective.
Only my views.
Exactly that Richy, yes the delisting has likely triggered some additional selling but oil prices are key. Enquest is one of the most price sensitive oil companies due to its debt and high interest costs, so it isn’t surprising to see the share price fall back with oil prices drifting.
Even at 12p the company is relatively expensive on a EV / FCF basis with oil at $75.
Enquest’s main selling point is the tax losses (I’m sure many will disagree with that statement) and I fully expect they’ll be a deal in the not too distant future that takes advantage of it (the delisting will make that future deal more straightforward). For that reason I’ve bought this morning.
IMHO there's likely some truth to the rumors. £1.5bln+ in revenue (and growing), next to zero debt and only a £400m market cap.
The problem of course is that the CEO hasn't been able to convert consistently growing revenue into a consistently growing PBT figure, which is why the share price is 45% less than when he took office in 2018.
Any buyer would be looking to take advantage of this dreadful performance to get a deal through. If there was an offer on the table of 300p+ then I think a lot of institutional holders would jump at the chance to get shut.
I hope there’s a bidder for the boards sake.
If there isn’t, there’s going to be a lot of questions about the pathetic performance of the share price.
270p would be fine with me.
Board must respond!
tullow a basket case. if oil drops equity is toast.
enquest would be a tax deal only (late life, high opex assets with a sizeable decomp bill) there’s probably only a handful of people in the country that have the knowledge (transfer of tax losses between complex corporate structures) to work out whether this would work or not. i’m sure harbour already know the answer to this.
ithaca maybe. but not until the fiscal review has been completed, or until we have sight of what the bat **** crazy labour party will do when in power.
energean would be my pick. high debt, but the group would be near 400kbpd with long life reserves.