Broker snap: JD valuation undervalues Bank brand

22nd Sep 2009 11:21

Broker Charles Stanley has initiated coverage of teenager sports fashion company JD Sports Fashion with earnings forecasts that are about 5% ahead of market consensus.'Our different from consensus view is predicated on the success we think that will start to emerge at Bank, JD's biggest branded fashion business. We think that the stock market has yet to grasp the significant opportunity offered by Bank,' suggests investment analyst Peter Smedley.Even based on the less optimistic consensus earnings estimates the shares are cheap, the broker reckons.Charles Stanley is forecasting pre-tax profit for JD of £58.1m for the current year. On Tuesday morning JD Sports announced interim pre-tax profit of £10.1m.'JD should theoretically be valued at least in line with the retail sector forward P/E multiple (13x based on consensus estimates) to reflect the fact that JD has a secure, differentiated customer proposition (particularly well developed in footwear), a convincing profits growth story, and a strong financial position,' Smedley argues.The shares are not very liquid, however, due to Pentland Group holding a 57.5% shareholding. Even building in a 40% penalty for this low liquidity, 'the shares still have the potential to reach our price target of 650p,' Smedley believes.