Investment Column: JD has the wind in its sales and is cheap
International Personal Finance; ATH Resources
Thursday 15 April 2010
Our view: Buy
Share price: 715p (-18.5p)
Momentum counts for a lot in retail, and JD Sports Fashion has plenty at the moment. Yesterday, the operator of the JD chain delivered a sparkling set of figures, driven by growing demand for its portfolio of own-brand labels, including McKenzie and Carbrini, as well as the plethora of Nike and Adidas products it derives from its exclusive relationships. Group pre-tax profits, before one-offs and joint venture results, surged by 26 per cent to £67.4m for the year ended 30 January 2010. Like-for-like sales rose 2.5 per cent and there was a significant jump in the net cash position to £60.5m at the year end, together with a 50 per cent jump in the total dividend to 18p.
Yet JD shares still look cheap, on a multiple of just 7.2 times 2011 forecast earnings, a significant discount to other retailers. This seems strange given that the JD success story over the past several years is about much more than the hackneyed phenomenon of "hoodies" wearing its white trainers. The retailer has relentlessly focused on extending and improving its fashion offer and has largely steered clear of flogging sports equipment like JJB and Sports Direct. For instance, it acquired the Bank fashion chain in late 2007 and yesterday said it had identified a "significant opportunity" to grow operating margin at the chain through better stock management, own brand development and "disciplined" store expansion. In the past year, JD has also acquired brands including the French retailer Chausport.
There were a few scuff marks on the trainers yesterday, notably a weak performance from Scotts fashion, though JD has vowed to address this. But this is a small blot on an otherwise spotless copybook, as JD continues to show its fashion and footwear rivals a clean pair of heels. Last year we said buy at 594p; this year we say buy some more.
International Personal Finance
Our view: Hold
Share price: 244.6p (+7.9p)
International Personal Finance is all the non-UK businesses of the train wreck that is Provident Financial and does in much of Eastern Europe and Mexico what Provvy does in the UK: advancing small, high-interest short-term loans to low(ish) income groups. As such its operations are always going to come with more than a little controversy. But the business case remains very solid. The first quarter figures revealed in yesterday's trading update were hurt by some very cold weather in Eastern Europe. This means customers need payment holidays because they can't work and makes it hard for agents to collect even from those that can.
However, a small profit was still made and the cash will be clawed back over the medium term and so shouldn't cause too many concerns. Meanwhile newer operations (such as Mexico) are gradually being brought into profit. With the global economy recovering, the business should hold up as more potential customers find work and can call on its services.
The chief executive, John Harnett, says IPL's pricing is comparable to alternative sources of credit given the sort of loans it offers, and clients can take out IPL loans at a much cheaper cost if they choose not to have repayments collected by agents. He is also confident about its prospects. At less than 10 times forecast 2010 earnings (yielding 2.6 per cent) the company is relatively risky but inexpensive. We are not entirely comfortable with IPL, but the shares, which we said hold at 117.75p, should still reward holders even at today's much higher level.
Our view: Buy
Share price: 77p (-6.5p)
The recent strikes at British Airways and Royal Mail, as well as potential stoppages on the railways, are a reminder of the 1980s when the Government and the miners were at each other's throats.
The popular analysis is that Margaret Thatcher "crushed the miners", which, of course, is only partly true. A thriving coalmining industry still exists in Britain, but ATH Resources, one of a several UK mining companies, issued what looked like a downbeat trading statement yesterday. Sadly, full-year production targets will be missed by 50,000 tonnes, with the group blaming delays in the start of its tip washing and reclamation plant in Nottinghamshire, while sales in the six months to the start of April fell by 8 per cent. Unsurprisingly, the shares reacted badly as a result.
But investors should not cut and run yet. The 2010 dividend yield is still a very healthy 7.7 per cent, with no hint yesterday of a cut. Despite the share price fall, the stock has put on more than 60 per cent in the last half-year, helped by stronger coal prices. Trading on a full-year multiple of 10.6 times the shares still lag the sector average of 14.3 times. Yesterday's share price dip is a real opportunity to buy.
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