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JD Sports 'top pick' in consumer discretionary, says Berenberg
9th Apr 2021 11:59
(Sharecast News) - JD Sports Fashion was sitting pretty at the top of the FTSE 100 on Friday as Berenberg said it was its "top pick" in consumer discretionary.
The bank, which reiterated its 'buy' rating and 1,100p price target on the stock, said the retailer demonstrated a "remarkable" recovery last year, significantly outperforming sports retail and brand peers, further demonstrating the strength and resilience of its brand and proposition.
"However, despite being perceived as a 'lockdown winner', it has not traded like one and with the shares remaining flat versus pre-pandemic levels, it has not traded like a 'vaccine winner' either," Berenberg said.
"This is very surprising, since we would argue JD is best positioned for a strong and fast recovery given its regional mix and growing evidence of accelerating consumer demand for 'sneakers'." It said the spending power and intent of JD's core "sneakerhead" consumer is still misunderstood by investors.
The bank said its indicators and peer read-across suggest consumer demand has accelerated further in 2021. In the US, which makes up about 35% of sales, it expects government stimulus to provide another big boost to spending. In the UK, which accounts for around 40% of sales, it expects strong pent-up demand on reopening.
It noted that these are the two markets where the vaccination programmes are most advanced. JD is hugely underestimated as a reopening trade and there is significant upside risk to consensus forecasts from pent-up demand and attractive M&A optionality, Berenberg said.
"JD looks cheap, in our view, for its quality and growth, offering a faster-growing and more diversified alternative to owning the sports brands, at a 40% discount."
At 1225 BST, the shares were up 3.2% at 900.45p.
The bank, which reiterated its 'buy' rating and 1,100p price target on the stock, said the retailer demonstrated a "remarkable" recovery last year, significantly outperforming sports retail and brand peers, further demonstrating the strength and resilience of its brand and proposition.
"However, despite being perceived as a 'lockdown winner', it has not traded like one and with the shares remaining flat versus pre-pandemic levels, it has not traded like a 'vaccine winner' either," Berenberg said.
"This is very surprising, since we would argue JD is best positioned for a strong and fast recovery given its regional mix and growing evidence of accelerating consumer demand for 'sneakers'." It said the spending power and intent of JD's core "sneakerhead" consumer is still misunderstood by investors.
The bank said its indicators and peer read-across suggest consumer demand has accelerated further in 2021. In the US, which makes up about 35% of sales, it expects government stimulus to provide another big boost to spending. In the UK, which accounts for around 40% of sales, it expects strong pent-up demand on reopening.
It noted that these are the two markets where the vaccination programmes are most advanced. JD is hugely underestimated as a reopening trade and there is significant upside risk to consensus forecasts from pent-up demand and attractive M&A optionality, Berenberg said.
"JD looks cheap, in our view, for its quality and growth, offering a faster-growing and more diversified alternative to owning the sports brands, at a 40% discount."
At 1225 BST, the shares were up 3.2% at 900.45p.