Broker snap: JD discount appears excessive

16th Nov 2010 10:46

Broker finnCap is holding fire on possible changes to forecasts for JD Sports Fashion until after the retailer's all-important Christmas trading period.For the four weeks to 28 August, JD reported UK and Ireland like-for-like sales growth of 2.7% providing "encouraging news", since the broker's forecasts assumed a slowdown in growth."However, the comparatives for this period are easier than those for the next couple of months which are bigger months", says analyst David Stoddart. "Hence we are inclined to stick with our existing forecasts until we see the Christmas trading update in mid-January".According to Stoddart, the sports retailer remains undervalued and appears "especially cheap" on the price earnings ratio."The company has established a reputation for beating expectations, in which regard this morning's announcement is welcome."The broker says that the reasons for the discount rating have been widely circulated, which include acquisition risk, high operational leverage and the dependence on the youth market. "However, the extent of the discount appears excessive", says Stoddart. A 'buy' is retained along with a target price of 1,065p.