JD Sports sprints ahead

JD Sports Fashion's (JD.) shares jumped 10 per cent after the high street retailer issued a trading update revealing that decent sales momentum had continued into the second half. Indeed, after reporting first-half like-for-like sales growth of 5.8 per cent back in September, management said underlying growth in the 16 weeks since had been "at very much the same level", and that they were "pleased with very recent progress" in the outdoor division - Blacks and Millets - where a major overhaul has been completed. The benefits from this restructuring should start to trickle through soon. But it's likely that the struggling fashion division, which is also being given a makeover, remains under pressure - there, like-for-like sales fall 2.2 per cent at the half-year stage.

The full-year results will, of course, significantly depend on the all-important Christmas trading season - particularly the final two weeks of December. But management was confident enough to state that the group remains on course to deliver "earnings at least in line with current expectations".

Investec Securities says...

Buy. While Christmas is a very important period, this statement reassures that the core business is performing well and that the outdoor side is improving. After a series of bolt-on acquisitions, the team has a clear strategy to continue growing the core JD business and has developed new growth angles in outdoor, international and on-line. The shares are valued on a calendar year 2014 PE ratio of 10 times; a 35 per cent discount to the sector average - undemanding given the long-term growth potential of the business. Reflecting the sector re-rating, we raise our target price to 1,500p, from 1080p, and reiterate our buy recommendation. We maintain our end-January 2014 pre-tax profit forecast of £69m, EPS of 102.9p.

Cantor Fitzgerald says...

Buy. The trading update was markedly better than expected and group like-for-like sales are reported to have increased by a similar level to the half-year figure. With Christmas still to come, we are retaining our financial year 2014 pre-tax profit estimate of £72m, with EPS 103.5p. We think the stock should be rated at least in-line with sector - so we're increasing our target price to 1,500p from 1,250p - and reckon that the valuation doesn't properly reflect the JD concept. Indeed, the format is clearly differentiated and has been strengthened over the last year - it also has significant potential to develop overseas. We are also confident that losses at the outdoor and fashion units will either be markedly reduced over the next two years, or management will seek to dispose of them.