Investment Column: Buy goody-two-shoes JD Sports Fashion

Minerva; Synchronica
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The Independent Online

Our view: Buy

Share price: 594p

JD Sports Fashion has been the goody two-shoes of the sportswear sector recently. While rival JJB nearly went bankrupt this year and Sports Direct became embroiled in a potentially damaging price-fixing inquiry this month, JD behaved itself again yesterday by posting better-than-expected pre-tax profits, up by 14.5 per cent to £14.2m in the half-year to 1 August.

The retailer – which unlike its two rivals sells very little sports equipment – attributed the performance to its differentiated business model, which centres on selling clothing and footwear brands across its retail fascias and wholesale operation. JD's portfolio not only covers its popular own-brands Carbrini and McKenzie, but also labels including Sergio Tacchini and Adidas Originals, which it sells under exclusive deals. Furthermore, it has plenty of growth potential, illustrated by a series of recent acquisitions and plans to expand its Bank fashion chain from 50 to up to 250 shops. This summer, it acquired Chausport, the 78-store French sports retailer, and the rugby brands Kooga and Canterbury.

Its shares – despite a strong run this year – trade at a 2010 forward price-to-earnings ratio of 7, a sizeable discount to the retail sector. However, life is currently anything but a walk, or run, in the park for JD. Its total like-for-like sales growth slowed to just 0.7 per cent over the half-year, hit by being up against strong comparables and a squeeze on the spending power of its young customers. JD also said its 38-store Scotts fascia "continues to experience profitability issues with its legacy store portfolio".

But JD has shrugged off the recession and will get a boost from sales of England football shirts during next year's World Cup. And given its good behaviour over recent years, its shares look a safer option for investors than betting on glory for the national squad. Buy.

Minerva

Our view: Hold

Share price: 40.75p (+8.25p)

For those that have stuck by the hitherto worryingly indebted London property developer Minerva, yesterday was, in part, payback time.

The group's shares shot up by 25.4 per cent after the company, which is responsible for the redevelopment of the Walbrook and St Botolphs, announced that it had refinanced a debt pile of more than £750m to finally put to bed fears that it could be claimed as a victim of the recession.

However yesterday's news, though welcome, does not restore parity. Despite the cranking up of the share price, Minerva stock is still well below the levels seen this time last year, when having huge amounts of debt was still acceptable practice. Minerva shares have climbed a massive 352 per cent in the last six months, from a floor of 5p, but they are still more than 50 per cent down on 12 months ago.

As such, Minerva shares are still very cheap compared to the rest of the sector. But we would not be buyers, and would point punters in the direction of the bigger names in the sector, such as British Land or Land Securities, both of which have also seen significant share price rises in the last few months. The bigger groups are also positioning themselves to take advantage of the upswing in property prices, and have continued to pay a dividend.

We would also argue that there are few kickers left for Minerva's share price after today's announcement, and as such the stock will continue to lag the bigger players in the sector.

We are generally more upbeat on the property sector than at any other time over the last 18 months, but that does not mean throwing caution to the wind: investors will still need to be selective, and while we would hold on to Minerva shares if we already had them, we would not rush to buy them if we don't. Hold.

Synchronica

Our view: Buy

Share price: 3.6p (-0.92p)

Synchronica makes software to sell to mobile networks so that people with normal, non-"smart" phones can have always-on email on their handsets.

It sounds technical – obscure, even – but the potential market is vast. Only 5 per cent of the world's mobiles are smartphones, and operators in emerging markets are looking for ways to establish phones, rather than PCs, as the route to the web. Email access is key, and while there are other companies doing the same thing, Synchronica's Mobile Gateway is one of only two that doesn't put software on phones.

It's been a busy six months, including a reseller agreement with Nokia Siemens Networks and nine contract wins in target markets. Yesterday's interim results show revenues up sevenfold to £1.33m, and the first profits are expected next year. Even the 15 per cent jump in costs is a sign, says the company, that it is signing up customers.

Synchronica stock looks undervalued – with a PE ratio of less than 10 times against a sectoral average of 16 – and the prospects are good. Buy.

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