Few companies could report a 59 per cent drop in underlying pre-tax profits and still enjoy an 11 per cent share price rise on the day. But Sports Direct (SPD) has long been bucking trends. On paper, things don’t look good. Ineffective hedging on sterling weakness against the US dollar has ravaged gross margins, underlying free cash flow dropped 44 per cent and the continued costs associated with onerous lease provisions sent operating profits down 28 per cent to £160m.
There's a feeling that the worst is over, though a new policy means that all forecast purchases for the 2018 financial year are hedged, so that margin effect should normalise. More importantly, Mike Ashley’s outlook statement is distinctly cheerier than this time last year.
The group’s 13 new generation flagship stores, a big target for investment, are performing ahead of expectations and analysts at Peel Hunt expect pre-tax profits and EPS to tick up to £115m and 16.5p respectively in the year to April 2018 (FY2017: £113m and 11.2p). There also appears to be some hidden value in the group’s brands. In December last year, management sold Dunlop for $138m (equating to £110m at period-end) – 27 times its pre-tax profits.
| SPORTS DIRECT (SPD) | ||||
| ORD PRICE: | 350p | MARKET VALUE: | £ 1.85bn | |
| TOUCH: | 349.6-350p | 12-MONTH HIGH / LOW: | 356p | 251p |
| DIVIDEND YIELD: | NIL | PE RATIO: | 9 | |
| NET ASSET VALUE: | 234p | NET DEBT | 15% | |
| Year to 30 Apr | Turnover (£bn) | Pre-tax profit (£m) | Earnings per share (p) | Dividend per share (p) |
| 2013 | 2.19 | 207 | 26.6 | nil |
| 2014 | 2.71 | 239 | 30.8 | nil |
| 2015 | 2.83 | 313 | 40.6 | nil |
| 2016 | 2.90 | 362 | 46.8 | nil |
| 2017 | 3.25 | 282 | 39.4 | nil |
| % change | +12 | -22 | -16 | - |
| Ex-div: | na | |||
| Payment: | na |
