Market Cap: 7.6b
Current Price: 151p
Industry: Apparel Retail
Annual Report FY 28th January 2023
The fashion business is tough, with low margins and plenty of competition. Those that succeed must be celebrated. JD Sports has come to dominate the sports fashion world, especially among young adults here in the UK and abroad.
The company operates a vast network of stores across the United Kingdom, Europe, Asia, and Australia, offering various products from popular brands.
Over the years, JD Sports has established itself as a destination for sports enthusiasts and fashion-conscious individuals. They offer a comprehensive selection of athletic shoes, trainers, performance footwear and apparel for different sports and activities. They often collaborate with famous brands for exclusive releases.
In addition to its physical stores, JD Sports operates a robust online platform. Using an omnichannel business model in the current economic environment is essential. JD plans to open another 7500 stores in the next five years. As well as retail, JD also operates a range of gyms across the UK.
The company has expanded its business through strategic acquisitions, including purchasing well-known sports retailers such as Size, Footpatrol, and Finish Line, further strengthening its position in the global sports fashion market.
Where many UK companies such as Tesco and Marks and Spencer have failed, the management team at JD Sports have cracked the US market and confidently plans to open another 750 stores over the next five years, all this whilst Footlocker, JD’s biggest competitor, this week missed earnings and reduced guidance sending the stock, which is trades on the NASDAQ, plummeting -25%. Could this show that JD Sports is taking market share? I plan to investigate this further.
JD generated profit before tax of £991m, ahead of a consensus of analysts’ expectations of £980m, and the retailer expects profits to surpass the £1bn mark for the first time this year.
The company is still growing, with revenue compounding at an annual growth rate (CAGR) of 23% since 2017. On average, investors hover around paying a Price to Earnings Ratio (PE) of 17x.
The current price of £1.59 gives us a PE of 12.2x on estimated Earnings Per Share (EPS) of £0.13 for 2023, which increases to £0.15 for FY25.
With increased investor sentiment in the retail industry, I would look for a price target of £2.40 by 2025. My Discounted Cashflow (DCF) Model price valuation also gives a price target of £2.40.
I am not invested in JD Sports, but it’s on my watchlist.
Market Cap: £312.27m
Current Price: 2,490.00p
Industry: Banking Services
Trading Statement for the period 1 February 2023 to 24 May 2023
S&U has a history that goes back to 1938. I heard that the founder Clifford Coombs cycled from South Wales to the Midlands with just £1 in his pocket and began selling pots and pans door-to-door. Business went well, and he started in the money lending business with short-term door-to-door loans. Today S&U is still run by the Coomb family (who are heavily invested in the business) and specialises in motor and bridging loans through the businesses Advantage and Aspen.
I hold S&U, which makes up 4.28% of my portfolio. The position is 19% up, and my biggest gainer this year after I identified an area of consolidation on the chart, which looked like a stage one cycle and the starting a stage 2.
This week’s trading update showed a slight decrease in the growth at S & U, but with the economic headwinds we are experiencing, this is justified and i am sure we will bounce back.
As a property investor, I am on the sidelines monitoring the UK interest rates. With the inflation data coming in a little hotter than expected this week, many now predict the Bank of England may raise again by another 25bps. The outlook is too uncertain to bridge a property and get stung on the refinancing through a mortgage. Once I identify that the BoE is happy with how inflation is falling, I will look at starting a new project. This strategy goes against the adage of buying when others are fearful, but with the dangers surrounding bridging loans, I’m happy to join the crowd sitting on the fence.
The car market is still growing, with new registrations up 11.6% in April. Business users mainly contributed to the rise, and private consumers declined slightly. As mentioned above, I suspect consumers are waiting and monitoring the situation for any good news in the economic outlook; this could lead to some pent-up demand.
Google trends for car loans and bridging finance are steady, which could show that consumers are still performing research.
This well-run family company keeps going from strength to strength and recently announced the expansion of office space at Aspen and reaffirmed its strategy for growth.
The management team has a clear objective of steady growth and competitiveness, which reflects in the results and reviews of the company’s Advantage and Aspen. I am happy to stay invested at S&U and will increase my holding on any significant dips in the share price to take advantage of the return to growth through pent-up demand once the macro environment improves.
Valuation
My price target for 2025 is 2900p on an EPS of 290p and a PE ratio 10x. Any improvement in the macro environment will lead to analyst expectations increasing significantly.
Big companies scare me.
On Thursday, Nvidia was up 27% on issuing excellent guidance reaffirming the hype around A.i is not just a fad. Time will tell.
Nvidia is a $762b company that trades on a PE Ratio of 197x. Some would say this is expensive, and I feel uncomfortable investing in a company at this valuation. But should I?
Nvidia stock generated a total return of more than 24,000% in the last two decades. £1,000 invested in Nvidia stock 20 years ago would be worth more than £241,000 today. I suspect it will keep on going up until the day I invest in it. On that day, I will return the stock to the price it was 20 years ago and kick myself for breaking my rules. This mindset has lost me a lot of potential gains over the years. I have watched Tesla, Amazon, Facebook, Microsoft and many more gaining year after year whilst always thinking these companies look expensive.
Nvidia is now at all-time highs, and whilst I sit here thinking that a trillion dollars in profits are impossible, I once thought that about the billion mark.
The main thing I took away from the Nvidia earnings was the reported revenue beat and “surging demand” for the data centre products. This has a read across to my position in Volex, which provides cables for said data centres. Many investors have commented that growth within that sector has slowed, which Nvidia contradicts.
Market Cap: £3.35b
Current Price: 179.5p
Industry: Consumer Cyclical/ Department Stores/ Food & Drug Retailing
I woke on Wednesday to a sea of red throughout my portfolio and watchlist. Then I spotted some green standing alone. I was shocked to find Marks and Spencer up 13%! M&S is a share I have watched struggle for many years. The company always seems to be on a turnaround strategy, but after a decade of promises, this retailer could finally be delivering.
See the full details of the turnaround strategy here.
This strategy shows signs of a return to growth if things carry on the way they are going. Profit Before Tax (PBT) came in at £482m, a £50m over analyst estimates. However, there is still a 7.8% decline from the previous year. The company is also recommending a return of dividends from November.
Food was the biggest gainer, with Marks and Spencer raising prices less than the competition. The management team has made the right decision and grown its market share as the process attracted new customers. Or was this an accident? Marks’ Food was already on the high side. Maybe the management team knew they struggled with pricing power and opted to keep price rises low. Whatever the reason, even though margins have been hit, the welcome addition of new customers can only be a good thing, and the company will be awarded as we move into better times.
Other parts of the business, such as homeware and clothes, have struggled. Like many companies we have discussed, M&S comments that the e-commerce side of the business declined as consumers returned to the high street. Luckily M&S is an omnichannel business, a good thing in current times.
I recently updated my wardrobe for the summer and scoured the internet for garden furniture. I do not recall seeing any advert from M&S. This is an area M&S needs to work on. The business still carries a reputation for catering for the more mature person and attracting young people through social media should be the company’s main focus.
Valuation
M&S has an average PE Ratio of 10-11x and is priced right at 178.5p per share. We could see a rerating if the strategy boosts profits and takes more market share. I watch with interest.
On a technical level, I would like to see a break in the trend down on the chart after the price hit a double bottom recently. I feel this move will be noticed by other traders and increase momentum to the upside.
DISCLAIMER: I am not a financial advisor; this is not a financial advice website. This is a diary of my thoughts and mine alone. All information is provided strictly for educational and entertainment purposes. It does not consider anybody’s circumstances, situation, trading style or risk levels. If you are making an investment or other financial management decisions and feel you need guidance or advice, please consult a suitably qualified licensed professional. If interested in trading, please develop your strategy and research your own trades.
The Week Ahead
The US debt ceiling fiasco seems to be ending. The drama that happens every few years always gets settled but goes right to the wire. Investors run around like headless chickens screaming, “This time it’s different!” but it’s not and will happen again in two years’ time.
With this, we are looking at a quiet week. The earnings period from the US companies is behind us with a few stragglers left, and inflation data and discussions should ease for a week.
The leading companies I will be focusing on this week are:
Tuesday:
HP – I want to know how PC sales are performing. I believe all who purchased PCs and laptops in COVID lockdowns will soon be looking to upgrade.
Crowdstrike – We were all told that Cyber attacks could be the biggest threat to humanity in the future. But these cyber security businesses are still not gathering much excitement in the trading world. Crowdstrike has recently broken from the trend down. Could this week’s earnings boost some momentum to the upside?
Hollywood Bowl – I have never invested in BOWL but always liked the company. Regardless of the economic situation, the management rolls up their sleeves and ensures the company battles through. I hope this week’s results show me a signal to get involved.
Thursday
Autotrader The UK economy is strangely measured by the media by how many houses and cars we sell. As cars are the second biggest purchase we make, I want to see if the consumer is holding back on purchases. This could also have a read across to my position in S&U (SUS). Autotrader doesn’t offer many trading updates, so finding out where the company currently stands will be interesting.
On the Macroeconomic front, this week is quiet. In the US on Tuesday, we can see the CB consumer confidence report, a leading indicator that can predict consumer spending, showing us the strength of an economy.
Wednesday and Thursday, The US displays the employment situation. In this unique situation, investors want to see jobs declining and going up! In other words, the Federal Reserve and the US government want to destroy inflation without destroying an economy. Can it be done?
Have a good week.
